May 18, 2022

Bogleheads® Chapter Series – Setting Your Children Up for Financial Success

There are many things parents or guardians can do to help set their children up for financial success in life. Since there is often no one way to do things that works for every child, participants share what has worked with their family, along with any successes / failures / lessons along the way.

Hosted by the Pre/Early Retirement Life Stage chapter. Recorded on May 18, 2022.

Slides from the recorded meeting can be accessed here.

Chat from the recorded meeting can be accessed here


Bogleheads® Chapter Series – Setting Your Children Up for Financial Success


Welcome to the Bogleheads Chapter Series. This episode was hosted by the Pre and Early Retirement Life Stage Chapter and recorded May,18, 2022. The presentation and discussion topic was setting your children up for financial success. Bogleheads are investors who follow John Bogle's philosophy for attaining financial independence. This recording is for informational purposes only and should not be construed as personalized investment advice.

Carol:  Okay I think we're ready. So I'm going to end the poll. I'm going to share results. So we have a pretty good distribution. We don't have very many 19 to 22-year-olds, but other than that, we have between two and two and five of each of the age groups. So we have a really good representation of all different ages of children or no children. So that's great.

Okay can you all see those results?  Let's move on. So the first slide is, of course we're going to just go in chronological order. So the topic of allowances. You've probably all been to the store where at the checkout you hear a poor parent with the child who’s either whining or crying. They want the parent to buy something, and the poor parent says, “No, I'm sorry we can't buy that today.”

So what's a good way to eliminate that problem because right now you're putting the the choice on the the parent, but if you give the child an allowance, then in this kind of scenario the parent can say, “Sure you can buy that if you have enough money saved up. Go right ahead.” So it's putting the choice on the child to save up. They really want this item, so that kind of eliminates a lot of, hopefully, stress when you go to the store.

But before you do that you have to explain to the child that in most cases the parents are going to pay for the need, which includes basic clothing, of course food, school supplies, that kind of thing. But once, of course, would be toys.You know as they get older in the old days it would have been a record, now it's I guess Apple Music, however they get the songs nowadays. Or even fancier clothes, like a name brand, an expensive sneaker, whereas you might say, okay I’ll pay $40 for your basic decent sneaker, but if you want to pay $75, you're going to have to pay the difference.

So basically it's a good thing to just lay out ahead of time: these are your needs versus wants. We're going to cover your needs, you're going to save up for your wants with your allowance, your birthday money, or extra money that you earn. 

There's kind of a debate whether or not to tie allowance to chores. And a lot of parents say they do tie it to the chores, some don't. I did read several books and listened to some podcasts to prepare for this, and what most people, the experts, are saying is a good method is a hybrid method, where the allowance is not tied to basic chores.

You have to do your basic chores, keep your room clean, whatever else is assigned, take the garbage out and stuff.  Those are expected to be done regardless, that's not tied to the allowance. So you're going to get your allowance either way. But the allowance is a basic amount where we get a few things but it's not overly generous. And then you can allow your child to earn extra money by doing kind of extra seasonal chores above and beyond the normal chores, raking leaves, that kind of thing. So that's what a lot of people recommend, a hybrid method, but basically you can choose however you want to do it.

And then there's the debate over whether you should pay the allowance in cash or some kind of electronic ledger.  I remember when my children were little, we started out with cash, but then we had a problem where if I would go to the store and buy them a toy, then they'd reimburse me when we got home. Then later on we couldn’t remember if they got reimbursed. And my child would say,” Oh, I know I had $30, where did it go?” And I'm like I don't know.

So then we switched. But at the time it was just a paper ledger where we'd keep a running balance. Then every time they bought something I would subtract, or every week when they got an allowance I would add, so they could go back and see if they couldn't remember. Sometimes you can't remember what all you spent it on. But nowadays, of course, you could do a spreadsheet, but that might be cumbersome to open the spreadsheet every time you do a debit. There's pros and cons to each method. 

One thing you want to do is encourage your child to plan purchases ahead of time, don't buy on impulse, and encourage them to eventually– the goal is to learn to save up for something bigger-- to delay gratification and save up. Some parents help by doing a little thermometer chart where they show the progress towards the goal. If they want to buy something that's $100 that's going to take them a while to save up.

Make very rare use of what I would call a bribe, I guess you could call it a reward. The only thing I did for my kids was every year we'd have their portrait taken. And you can't really force a child to smile, like what are you going to do, you know you can't make them smile for the picture. So what I would do is once a year when they had their picture taken, I would tell them we're going to go get portraits taken and then you can buy a toy up to $10 or whatever it is. 

The only other thing I guess you could call a bribe or a reward, the only other thing I kind of bribed them with was when they were out of their crib to their big bed. That's a very scary thing for them and they really needed an incentive:  on the first night, if you stay in your big bed all night, you can pick out a toy.

Then there's the issue of holiday birthday gifts. What we did was we kind of set a dollar amount and every once in a while, some years we were just I'm feeling really generous. This year I'm going to buy them a Playstation or whatever. But usually they knew they were only getting a certain amount and we didn't go overboard with the gifts. But you know that's up to you.

There are some board games to make it fun for the child. Young children love to play board games, I know my kids love to play board games.  Some of the ones you’ve heard of, we personally had Life and Monopoly, but I've also heard of Payday and there's one called The Allowance Game.

Now this is one thing I do not have personal experience with, but there's something I've heard mentioned several times called Samzu Family Finance app, and I did kind of look into it a little bit. It does have a fee. I think it was maybe, if you paid for a whole year, it was like 30 or 40 dollars for the whole year or six dollars a month, which isn't super cheap. But it might be worth it and you can order debit cards for each child. You can even order them for a young child, but if they're younger than 13, it had to have the parent's name and then the parent is supposed to be with the child if they make an online purchase. And then it also has all these features, you could look up what did you spend on, what's the balance for each child, and easily transfer from the parent’s account to the child's account and that kind of thing.

Now, does anybody have any tips on what worked for them as far as allowances for their young children, or anything like that?  We'd love to hear from you. Just use your raise hand icon on zoom to raise your hand. Keith?

Keith: Yes, a couple of things that we did that I'll share. The first thing is the holiday and birthday gifts: we, for lack a better term, mandated that half of what they got from grandmas and grandpas, and aunts and uncles and everybody for birthdays and holidays went into a savings account, and then the other half they got to keep that money. Then when they were around 12 or so years old, we bought a little plastic container big enough that you could put papers and a checkbook and things in, and they would put the money in there. I had them make what was basically a checkbook ledger with a piece of paper and if they wanted to go buy something, they had to pay me and mark it off of their balance that was in this container that had their money and other papers and things that they had in it.

The objective was to teach them how a checkbook works without actually having a checking account because they were just around 12 years old or so. Also the lesson was that you should always save when you get some money and not just spend it all on something. And I think over time that message kind of came through.

The other thing we did with the gifts is if there's something they wanted to buy with the money that they had left, I would have them pay me and I would buy it, but I actually put that into my own little container. When they were getting ready to go to college, I handed them all that money back that I had been sitting on, the money they had paid over the years.  I don't know, it amounted to somewhere between I think $800 and $1,000 for each of my three kids.

So number one, they were very surprised that they got that money back because they never knew that that was going on, to them they were spending their own money. They had to account for it, but since they were 12 or 13 years old I didn't expect them to pay for it. I  just sat on the money and then handed it back to them. The lesson was you need to be responsible with your money, you need to keep track of it, you need to make sure that you put it in a safe place, that you can find it, otherwise you just find money all over the place, all over their rooms.

Hopefully it taught them to be kind of responsible and organized with their money.  It seems like it worked. All three of my kids are in their 20’s now and it seemed like it taught them, for the most part, that lesson.

Carol:  Great. Thank you so much Keith for sharing your experiences.

Miriam:  We did a similar thing with the bank accounts.  Our kids opened their first bank accounts at Chase Bank at five or six years old.  The bank had a cute account for the kids, a savings account. They would walk in, they would be really small, and they'd walk in and stand in line with everybody and deposit their birthday money there.  It was nice, they had their little passbook.  Not that they really made a lot of money, but it was the idea of getting them used to banks, getting used to going into banks- and that this is what we do. This is what our family does. We use banks and we save money in banks and we deposit our money in banks.

When they got a little older, actually all my kids were at Vanguard I believe at 16 years of age, as soon as they could have their own accounts, these were taxable accounts. They opened them there; they were joint accounts with me. As soon as they started working they had a Roth IRA, and I would show them how to deposit the money into the Roth IRA. At the end of the year, they would find out how much they had earned that year when they got their W-2,  and then deposit that in the IRA. Actually, my husband and I decided early on that what we would do to help our children is to do the actual depositing, we would put the money in the IRA for them especially if they put the rest of that money into their taxable account. We have done that to this very day, fund the IRAs for all our children. I don't know how long that will go on, but for right now we do that. 

In terms of working when they were young, I had a family work day. This was maybe once or twice a year, three times a year, where I decided it was time that everybody in the family pulled together. We are part of a family and this is what we do. We take care of the house. We do things around the house. We do things around the yard. We clean the hamster cages, the bunny cages.  We pitch in and help for the family. So I would set the family work day. It would be posted on the kitchen counters. They were to be here at nine o'clock in the morning. (This is before they had moved out of the house.)  There was no pay. This is part of being a family. This is what we do. And then at the end of the work day we all went out to a restaurant for a very special dinner and they could have all the dessert they wanted. So it was a nice family time even though they grumbled and moaned and groaned. And the neighbors would think they were really cute working out there with their wheelbarrows and everything. But they still talk about it to this day, “Oh that was the worst thing you did Mom, those the family work days.” But they remember it, and they really liked it.

Also, like Keith mentioned about saving the money, although we did not do it, I read about the three buckets or the three jars approach. You may have read about it. One of the editors, maybe in the Wall Street Journal or the New York Times wrote about this.  When his children received money such as birthday money, there were three ways, three places to put it. One was for charity, some of it would go to charity, in the charity bucket. The second would be for savings. That's what you put in the bank. And the third bucket was you could use for whatever you wanted. I can guarantee you my older son saved every bit of that money. He saved all his money growing up. My daughter was a spender, liked to shop. My younger son would save all his money except for computers and then he would spend it. So each child was different. We raised them all the same and yet each child was by nature different.  To this very day it's the same:  they are different.

Carol:  Very good. Thank you Miriam. Beverly and Tim, you can go ahead and start.

Beverly: Hi, I'm here. I just wanted to mention we do something similar to Miriam in that my kids are in their mid to late 20’s now and we started maybe five years ago doing an IRA match at Christmas. So Santa would match whatever they put into their IRA account, and they're very fond of that. 

But thinking back to our kids having bank accounts. When they were younger we banked at a local bank in the Princeton area and the kids would always go in there and make their deposits. And one day the manager, who knew us pretty well since it was local, asked how the kids were doing and I casually mentioned that my daughter was looking for a summer job before college. And I wasn't even finished but she said, oh well we need to tell her so here's an application, have her fill that out. So it wound up being a great thing because every summer she filled in for others who were vacationing and she had a work history out of it. It was a minimum wage job, but it was an added bonus of her being known at the local institution. It also became her college job, well it became her college summer job also.

Carol:  Very good, thank you.There's a question in the chat. What age should allowance start?  I'll give you my opinion on these two questions and somebody else can chime in if you want. And then the other question was:  Do you give a reward for good grades?

So as far as the age. Personally I think as soon as the child understands the concept of money, how much different things cost, different amounts, and they have a desire to buy certain toys, they're ready to have an allowance. And personally I think this is around the age, could be as young as four maybe five. That's kind of when my kids were ready. 

As far as paying for grades, it's really highly dependent on the child. Some children would really respond well to that, but other children are just completely internally motivated and they don't need that at all. So it's really highly dependent on the child. 

Does anybody have any input on those two questions, the age to start the allowance and whether you should pay for grades. Oh, Beverly and Tim, go ahead. Do you still have your hand up? Does anybody have any-- 

Beverly: I forgot to take it down.

Carol:  Okay I think somebody had a question from the RSVP forms:  How to teach kids about money by age. And at the end of this presentation, there is a list of books that are pertinent to this discussion. You don't have to write these down because you'll see them at the end.

Beyond Piggy Banks And Lemonade Stands by Liz Frazier. This was geared towards younger children, pre-k through fifth grade, so it has a lot of information on this slide like allowances and for young children. And then there are two books that cover more of an age range. One's called  Raising Your Money Savvy Family for Next Generation Financial Independence by Carol Pittner and Doug Nordman (who is a Boglehead!) and this has chapters, one for toddlers, one for grade school, one for tweens, one for teens and young adults.  So it kind of covers the whole gamut of ages.

And the same thing, there's another book called Kids and Money by Jayne A. Pearl; it  covers toddlers through young adults. The last book I want to mention is Launching Financial Grown-ups by Bobbi Rebell. This is geared more towards college age and young adult children. So there are several books listed that cover the whole range of different topics for different ages of children.

We had another question from the RSVP list for this slide and it's: what is the best simple way to deal with abnormal amounts of birthday money, but then they say under $2,500, age eight. Keith, you kind of answered that as far as the buckets. But for an amount like $2,500 you might even want to consider putting a part of it in a 529 plan. If there's already one open for the child, they can contribute to their own 529. But definitely you'd want to split that up, you know, charity savings, 529, and spending for that kind of thing.

Okay we're going to move on to the next slide. Let's see here, the next slide is teens. The only topics I want to bring up for this is you may want to consider for a teen, giving your child either a quarterly or an annual lump sum for some category such as clothing. Just say I'm going to give you X amount for clothing for the whole year and you can spend it however you want. Hopefully that will teach them how to manage a lump sum over a longer period of time and they'll realize oh, if I buy everything I want right away, all the expensive brands, when I grow two inches at the end of the year, I’m not going to have enough to buy more jeans. They're going to learn they need to plan ahead and anticipate their needs for the whole year.

In some of the books I read, there was a lot of talk about helicopter parenting versus letting children learn from their mistakes. And I know I do kind of err on the side of helicopter parenting! You should let them make some mistakes when the cost is low. But I think you should intervene when - personally, I intervene when I think the price of the lesson is too high. Some parents feel that the kids will learn natural consequences of their actions, but to me if they're going to oversleep on the day of their final for high school, I’m going to wake them up. I'm not going to  let them learn the natural consequences of something like that. That's too high a cost, in my opinion.

But if it's something such as they didn't return something – I know people don't even do Redbox DVD’s anymore – but there was one time when I saw one sitting out on my daughter’s desk, I was going to remind her to return it.  Then I had to stop and think, I'm not going to remind her because the worst thing that can happen is she's going to pay a little bit of a fine, it's not that big a deal. So in that case I intervened when the price or the cost of the lesson was a little bit lower.  Only you can really draw that line where you think you need to intervene.

You should definitely have them make a few mistakes when the cost is low. When I had my kids, we really didn't have to have to worry about debit cards for teens because you weren't buying anything online when my kids were little. But nowadays a lot of kids want to be able to buy things online. 

And I don't have any personal experience with these cards, but here's -- I looked up this one called FamZoo. Greenlight, GoHenry, Copper. So anybody, at the end of the slide, if you have any experience with any of those, let us know. Also, someone mentioned a Fidelity youth account which is for teens 13 to 17, which does have a free debit card.

Another dilemma is -  should you encourage your child to work during high school? And I know a lot of kids do and that's great. Personally, my kids were in marching bands.  You know, in a marching band you get up and you go at 6:30 every morning to band practice, and then you have Friday night practice, and sometimes you stay late.  And to me that's almost like a job in itself even though they're not getting paid. But it's teaching them the same things. It's teaching them to get up and go somewhere even if they don't feel like it. Teaching them to work hard. Teaching them to learn things. Teaching them to get along with others. So to me that was kind of teaching the same values as a job and it was taking up as much time as a job. Therefore, it just depends on your child:  if they have a lot of extra time on their hands, you might want to encourage them to get a job.

Does anybody have any comments on any of these topics for teens? Let me see if there are any - Keith, go ahead.

Keith: I would just say, and this really came in at the very end with just our daughter, you have all these electronic things going on like Venmo and that type of thing. My boys were a little bit older by then, but my daughter was kind of just at that age where she was learning about money and Venmo and those kinds of transfer companies. So my comment would be if your kids are young you probably want to have a strategy for those types of things because right now they're used a lot. If one of my kids goes out to eat with his or her friends, somebody pays, and then everybody else has to Venmo over the money to cover their cost of their meal. I don't have an answer or an opinion, it's just that it's out there. And you know if you have a 14 or a 15-year-old who’s learning about money, that's probably going to be something you're going to have to deal with.

Carol: Okay. Thank you, Keith. Let's see, we did have two questions from the RSVP questions. Okay, strategies to increase children's interest in personal finance and investing. So I guess what they're asking is what if the child – you're trying to sit the child down and teach them something--and they're just not interested. They just don't care about hearing about that.  So does anybody have any tips on how to get your children interested in discussing personal finance and investing?

This may be one of those things where I know with my daughter, sometimes it's best to teach a lesson when they need to know. Sometimes they don't care until they need to know. They don't know what an IRA is, but oh, now all of a sudden they have a job. Now they kind of need to know that kind of thing or they get their first real job with the 401(k) and they don't understand. What's this bond index fund?  What's this mid-cap?  I don't know. Then they might be more receptive to you explaining and so sometimes it's best to introduce topics when they need to know. They're definitely going to be more interested.

The other thing is that oftentimes you have to explain things, they're not going to get it the first time. You have to explain things several times before it sinks in. These concepts can be very difficult. Like my daughter. What's the difference, what is a stock?  What is this? I don't understand what this is.

Miriam, go ahead.

Miriam: Yes. What I noticed also is that they, the kids, when you mentioned it takes a while for it to sink in, one thing that happened is when my son put all his money into Vanguard, into a stock fund when he was young, when he had his first accounts. And it was, actually it was not, I'm sorry, it was not Vanguard.  It was another company that had a stock fund called the Young Investors Fund. Stay away from those!

Every so often you'll see them. These are mutual funds that are stock funds and the manager wants to teach children how to buy and sell stocks well or how to put it into your mutual fund, and it sounded neat. It had this really neat little article that they would send out to the kids every month. Why I bought Microsoft? Why? The manager would say, this is why I bought Microsoft, and he would explain why. And then you could write in a question: Why don't you buy Macy's? Well, I didn't buy Macy's because of this.

I thought it was a good education system for my son, that he would read it, he would like it and the pamphlet had cute little bugs running around on the papers and stuff like that for the Disney movies.  But what happened was when the 2000 dot-com bubble came and his money was in this stock fund, he lost 40% of his money.  And I will say right out loud he had $6,000 in that account and he lost 40%. His account was worth about $3,500-$3,800. And actually he had a good friend who did the same thing. He put his money into -- his father was with Merrill Lynch – into a Merrill Lynch stock fund. He lost 50%.

The only good thing was I would hear these two kids talking in the bedroom about how awful their parents were, encouraging them to go into a stock fund. They lost all their money. And trying to explain that to my son, no this is a bear market, this is after the tech bubble, and trying to explain it to him, that you will recoup your money down the road when the market goes back up. I could tell the horror, how upset he was at losing his money, was worse than any education that it gave him to lose the money.

So what I did was, when he turned 16 and he opened his Vanguard taxable account, the money that was left in that Young Investors Fund - it had recouped up to about $5,000 - we immediately sold that, and I sat with him and we moved it over to Vanguard and we put it in Vanguard Wellington, which is a 60/40 mutual fund. It's not the best for a taxable account, but at that point it served its purpose. He saw that money going up, up, up. Every time he looked at his statements he could see he had earned more money. At that age, it seems that that is what they want from their investments, from their savings, they just want to see that it goes up. They don't care if it goes up a little or a lot. They don't know the percentage. All they want to know is that each month they made more money. They didn't lose the money. And it worked.

And to this day, he's a professional and he still has that same Vanguard fund at Vanguard in his taxable account. It’s now worth so much money he almost can't move it and incur the tax consequences. So he doesn't contribute to it, it just builds up on its own by reinvesting dividends and capital gains. But it did work and he now knows a little bit about asset allocation. 

So that's one thing I would mention about young kids. They're not going to get what stocks and bonds are. They're not going to get what a bear market is or inflation, a taxable account versus an IRA. They're not going to get it until they're a little older.

Veronica: Thank you Miriam.

Carol:  Yeah, the last thing we want to do is scare our kids off at the get-go – they just lose a bunch of money. So I'm glad your son, after he did Wellington, it started going up, because what you do not want to do is scare them off of investing for the rest of their life..

Veronica, I see in the chat you had a question. You had a question from the RSVP and I'm going to cover that later on in slide number nine. I actually did a little bit of research about kids IRA’s, so we're going to cover that later, a little bit later and I’ll move on to another now.

Somebody else had a question on how to handle big spenders. Does anybody have advice, other than just if they don't have, you know, they can only spend what they have, right?

I'll tell a little story about my son. I think we started him at a young age, like he was four. He was young and we gave him a dollar a week at that time .Every week he wanted me to take him to Walmart and buy a little matchbox car, every single week because they were a dollar. And we let that go on for a good six months, maybe a year. And then we said to him, “Hey, you know what, if you don't buy a matchbox car every week, after a while you'll save up some good amount of money.” And he actually took that to heart and he didn't spend any money until he was about 12. And then he bought an Xbox.

It was kind of crazy. But sometimes you let him make a mistake, then just explain, “Hey, you know, if you constantly spend all the money you have, you're never going to be able to save up for anything bigger, that you want.” So if they have something bigger that they want, maybe you could say, “You know, if you didn't spend money, if you only spent half your money, for this many weeks or months, you could actually save up for this . . .” -  whatever the item is that they want. That's the only suggestion I have about that. But if they have money, you can't stop them from spending their own money as long as the item is appropriate for their age.

We're going to move on to banking and building credit. Some of this has already been discussed a little bit. One way to build your child's credit - and by credit I mean your credit score – is adding your child as an authorized user on your card. The bank will send them their own card, but you don't have to give it to them.

Not all banks will report an authorized user on a credit report, but a lot of them do. You either have to research beforehand or just do it and then a few months down the road check their credit report and see if it's on there. But if it is, if it does get on there, it will help them build a credit history.

And then at some point, either high school or college, I know my kids, I think it was right before college, we opened a Chase college checking account – and Chase waived all the fees and they didn't have to have a minimum amount in there. I believe it was actually joint with the parent. At the time you open the account make sure they understand any fees that it may have, and also decide whether or not you should sign up for overdraft protection, which you may not want to because that can be kind of dangerous if you're not watching your account. A lot of banks charge a $34 fee, and some of them even go to the trouble of arranging the transactions, where the smallest ones go first, that each, that the smaller ones will do a $34 fee and then every additional overdraft will too. They can be really ruthless that way. You probably don't want overdraft protection in most cases. 

The other thing is, from back in our days, I still balance my checking the old-fashioned way, but realistically I don't think most teenagers are going to be sitting down with a little budget or something. If they don't balance a checkbook, make sure they at least log on frequently, or more likely it's going to be on their phone, to check the transactions, and to make sure nobody got their debit card information or whatever. Make sure they recognize all the transactions and that the balance is about what they expect. Also they should be downloading their bank statements every month and printing them out or saving them on the computer.

When it's time for them to get their first credit card, make sure they understand about the high interest rate. Try to encourage them to pay it off every month. You definitely don't want them to build up a larger balance or really any kind of a balance. Let them know they do have a credit limit, which does help build their credit and their credit score, but that doesn't mean they should charge up to the credit limit. If your teen doesn't qualify for an unsecured card, there is a secured card. I got this information from Clark Howard. I listen to him and he has a lot of information about secured cards like Petal, Chime, and Discover It Secured.

When it's time, show them how to check their credit report – though make sure they only go to the One time I accidentally somehow went to one of them that wasn't the right one, and nothing really bad happened but I realized I shouldn't have gone to that one. So I’m trying to be real careful to go to the right one. It'll say this is the only official website for the government, you know there'll be a notice on there. 

To protect their credit, make sure they understand this. Warn them about scam emails because that's how people get your information or you get a little virus on your computer. Never click unless you're expecting a very specific email, that you just did something and you're expecting an email. Don't ever click on things in emails or call numbers back from the phone. If your bank calls and says we think you had a fraudulent transaction, but you know it’s right, you should look at the number on the back of your credit card and call that number instead. Don't ever call the number the caller tells you to because they could even be spoofing the number and it might look like it's the bank on the phone, but it's really not. Same thing with emails or text - you should never click on a link, always go directly to the bank's website. And I never do banking on my phone, but I don't that's realistic to tell teenagers never to do anything on their phone because they do seem to do almost everything on their phone!

Does anybody have any inputs or suggestions on maybe good credit cards for teens, how to build their credit, that kind of thing?  What to warn them about when getting a credit card? Let's see if anybody, go ahead Miriam.

Miriam: One way to build good credit is to buy your own car.  What my husband and I did, we decided we would purchase each of our children their first car.  And from that point on they were on their own. We learned that if they purchase it in their name, even though we fund it for them, they do get good credit on their credit report. They get the credit for it.  And paying off a large sum of money like a car loan over the years, month by month, even though you would put maybe 50% down payment, and then just have maybe one or two years of payments, they can build their credit that way.

Now they are paying interest on that, but you decide how to do it.  Maybe pay enough down so that they only have a year's payments for their Toyota or their Camry, whatever it is,and paying it off monthly. Then on the credit report it looks like a very, very good loan that was paid off. It was a car loan and it was paid off on time over the course of a year.

Carol:  Thank you Miriam. Beverly and Tim, go ahead.

Beverly: Two things. When our kids were in college I suggested that they each get one or two credit cards before they graduated because the day after graduation you're significantly less appealing to all of the credit cards. So they listened and they did that.  And Nerd Wallet is a place where you can find not only free credit cards, but credit cards that have some kind of cash back reward.

And the other thing that we asked our daughters to do was to get a loan during college. And they didn't want to do that and now they regret it. Because when it came time to get mortgages, they wish they had a better credit history. They do have an excellent outstanding credit score despite all that, but one of them has a specific number in mind and she's like, “I could have gotten over that five point thing if I'd only gotten that college loan like you said Mom.” She never said you were right Mom, but she came very close!

Carol: Thank you, thank you. Okay, let's move on. The next slide is, I think, it's the one Miriam was talking about Miriam – so Miriam you said, if I remember correctly, you bought your kids the first car and then they were on their own after that, right?

I think that's a great way because then when they have the car, one thing they might want to consider doing is after they get the first car, immediately start putting aside money every month, and then in 10 years they'll have plenty enough to pay cash for the second car. So that's one way to do it. 

But there are several different ways to do it and I kind of changed my mind.  My first thought was, “Oh I'm not going to buy my kid’s car”  but then I changed my mind.

There are a couple of things you can do. You can give or sell them your old car instead of trading it in. However, you have to balance that with, well, it's an older car, it may not have as many of the safety features as the newer car. Our cars have that little blind spot mirror, the little tiny mirror within the mirror. Some of them have backup cameras and things like that to make it safe. Four more airbags and things like that.

Or if you have enough cars within your family, you could just share, share maybe a family car with them. If they do buy it, you want to make sure they understand the consequences. My daughter hasn't bought a car yet, but she was talking about it. I said do you understand about – well now, all bets are off right now within this environment – but you know two years ago before all these supply chain problems, you would look up the MRSP [Manufacturer Suggested Retail Price] on the internet, and you might pay your deal, or a hundred dollars over them. You never paid a sticker price for a car. But if you've never been shopping for a car before you might not necessarily know that.

So it's great there's so many different things you can do on the internet to price things out and order directly. If they do get a car loan, don't necessarily get one from the dealer. You might want to shop around, shop around for a credit union. You could also consider either lending money with interest or without interest.

You definitely want to make it clear who pays for maintenance, insurance, and gas. And that's kind of up to each family. Whether or not you just want to put them on your insurance and pay for it, that's up to each family, but just make it clear ahead of time who's paying for what. Also who's paying for the deductible if they have an accident. In a lot of cases it's a good idea to have them pay for it so that it really hurts. You want them to be extra careful when they drive, and of course it's not always their fault if they have an accident. But you do want it to be kind of painful to have to pay out that deductible.

Does anybody have any tips, and Miriam you gave some great tips on buying the first car. Keith, go ahead.

Keith: Yeah, so like Miriam, we helped our kids buy their first car. We put some money in and then they actually used some money they had saved up from holidays and birthdays and various things like that. One of the things I would mention, having been in the automobile business, is if your child is getting ready to graduate college, a lot of times there'll be additional rebates or incentives available for “quote” recent college graduates.

There's also the question: do you want to cosign a loan to help your child or not?  Do you want to have that liability of being on the loan?  That's something you want to think about as far as insurance. When we did this for our kids, what I found is that up until the age of 25, if they insure the car under their name only it's very expensive. And it usually helps a lot with the cost of insurance if they're kind of part of your family. But obviously if something were to happen, it affects your rates also. So that's something else to consider.

But there are a lot of ways that you can help them - like I said, with various incentives that car manufacturers have and special loans for recent college graduates, et cetera.  Same thing if you're in the military. So look for some of those special deals that can apply to your kids, that might help them if they are shopping around for a new car or a relatively late model used car that they have to finance.

Carol:  Those are great tips Keith. Thank you.

Okay, the next slide is basically college funding and this could be an entire topic for a meeting on its own, so we're not going to go into any detail. But one thing I was reading is that it's important to prepare your kids well in advance, some said in middle school start talking about it. Ask them how much you're going to help us. You might want to say, “Oh, we've only saved up enough for you to attend a state school.” Or we've saved up for you to attend a two-year community college, and then you're on for the rest. Or whatever it is that you decide you can cover, just let them know ahead of time so they don't pick out the most expensive private school and only find out after they're accepted that you're not going to cover it. Set their expectations ahead of time.

529 plans can also be used. Not everybody wants to go to college or is right for college, so 529's can also be used for accredited trade or vocational school. That's sometimes a good option for kids.  One tip I've heard for saving money is to consider community college for the first two years, preferably with living at home. But just make sure that the credits will transfer because they don't always.

The child should research and apply for scholarships.  I remember when I was in college, of course this was a long time ago, but somehow I saw this very small, kind of very modest scholarship, and I think you had to write on something. I thought, “Oh I'll never get that,”  but I did for some reason.  I'm sure there are multiple ones, but I was surprised that I actually got the modest scholarship. But every little bit helps.

Similar to high school, there's the question whether the child should work in college. And to me it's the same as in high school, where it's highly dependent on your course load, your extracurricular activities, and the necessities. Sometimes it's necessary. Sometimes the course load isn't that tough and 20 hours a week working is easy to fit in. Some parents really feel that the child will take college more seriously if they're paying for part of it, which could be true for a lot of children. But on the other hand, some children are very internally motivated to do well regardless, and they have a really heavy load. It may not be right for them to have a job. So it's very highly dependent on the child and their situation.

College loans - if your child does get one, just make sure that they really understand how much it is. Some children – even a 20, 19-year-old -- might not have an idea what $100,000 or $150,000 is. They might not really comprehend what that is. Maybe have them research what  career they want to go into and how much it pays, and then say, “Well you know you don't get that whole amount, you’ve got to pay taxes and FICA taxes. And then you probably want to put some away to your 401k.” So after it's all said and done, you're taking the pay, it’s going to be this much, and calculate how long it's going to take them to pay off the college loan at that pay. And then you know, you may end up paying two or three times as much as the loan amount in interest. Make sure they understand all that so if they do get a loan, they're going into it with their eyes open.

One tip I do have is: don't put 100% of needed money into a 529.  There's still in effect and I believe it’s been made permanent, the American Opportunity Tax Credit, which is not a deduction, it's an actual tax credit of up to $2,500. But if you're covering the entire amount under the 529 plan, you don't qualify for that tax credit because that money has to qualify for the tax credit. You have to pay part of the college expenses with money that's not what is called “qualified,” or is not coming from a qualified plan. It has to be outside the plan. So try to hold back a little bit if you're planning to fully fund college. Don't necessarily put 100% into the 529, maybe hold back a little bit in one of your taxable accounts.

I think I did mention to have your child research salaries when deciding on a career and don't necessarily rule out, don't necessarily discourage them, from being in one of the lower paid careers. Just make sure they go in with an understanding they may need to adjust their lifestyle. They may not be jet setting to Europe every year, and may not have a big fancy house. Make sure they understand the salary versus the lifestyle.

This is always a tough one. What if you have one child that becomes a teacher, another child goes to medical school or law school. If you fund both of them 100% you have to figure out for yourself is that really fair because you know one child may go on to make a higher salary.  It's a very tricky situation and I definitely don't have any answers. But it's something to consider before you help the first child. You want to maybe have a plan for all the children to make sure everything is fair.

Does anybody have any--I do have a couple comments from the RSVP-- but does anybody have any comments on this slide? Go ahead, Keith.

Keith: Yeah. I'll just really quickly mention on the scholarships - I've had three kids that have gone through this process. My youngest is currently in college now and there's something called a merit scholarship, but not every college offers it. So if you have kids that are going to be future college students and you're going to be starting that process, I told my kids that you had to go to a college that offered a merit scholarship. It's usually based on your GPA in high school and there's a dollar amount that is essentially discounted from the price of tuition based on that GPA. Each of the three schools that my kids went to had different amounts that they received, but they were all in the thousands or tens of thousands of dollars per year. So over the course of four years it was a substantial discount, so to speak, off the stated price. So always look for merit scholarships if it's available at the colleges that your children are looking at.

And then, of course, if you have any local scholarships, for the town or where you work – the company where I worked had one– you could apply and it was only a few thousand dollars, but it was worth applying for. So always look for that, but especially the merit scholarships, because you'd be surprised. There are quite a few schools that do not offer that, and then the rest of them do, but the amounts vary pretty significantly. It's worth looking into because it could save you twenty, thirty, forty thousand dollars over the course of four years.

Carol: Very good. Thank you, Keith. Yes, speaking of the merit scholarships, the college my son went to had these tiered levels based purely on your SAT score, the higher it was the more they covered. I've heard that if your child is lucky enough, not lucky enough, hard working enough, to be a national merit scholar, there are some colleges that will give you 100% tuition or sometimes a tuition and room and board merit scholarship just based on that. 

We have a couple questions from the RSVP’s I think we kind of covered. One wanted to know private versus public school. My kids both went to public schools so I don't know a whole lot about private schools. I know they do tend to give out a lot more, I think they give a lot more scholarships. But of course that doesn't guarantee a scholarship. But does anybody have any comments on private versus public schools?

Okay, the other question from the RSVP was, “I'd like to start investing for kid’s retirement, but I don't want to mess up college financial aid. Any best practices?”

I did find an article on how a student's IRA is counted for financial aid, it’s a Kiplinger article and I'm just going to read a couple sentences: “Assets in an IRA, whether held by the parent or the student, are excluded from financial aid calculations. IRA withdrawals, on the other hand, are included in the income calculation on the federal financial aid forms. Money withdrawn from a child's IRA is considered to be the student's income and is hit hard by the financial aid calculation.”  So in other words, having money in an IRA is fine as long as you don't take it out the year that it's going to show up on the FAFSA. That's what I get from that. So it's not a problem that they have. It won't even be counted at all if they just have enough money in an IRA and keep it there.

Okay, let's go to the next slide. So now they've graduated. In their job interviewing, and this is something if they've never been to one -- I guess I'd call this a “real job,” not that working at McDonald's isn't a real job, but I think it's a slightly different kind of an interview if you're going to go to a big corporate job versus going to McDonald's. But you may want to encourage your child to do a little bit of research because there are some common interview questions.  One of the most common is what are your weaknesses. And if the child's never really thought about that, and then,of course, you’ve got to word your answer in such a way that it's “here's a weakness, but here's how I overcome it,” so it doesn't look like it's a bad thing. What made you want to interview with this company? But there are going to be a whole list of very common interview questions that they should be prepared to answer.

And I've also read they should always do a little bit of research on the company to have questions to ask the interviewer about the company and to explain how they can contribute to the company.  They may need help shopping for appropriate interview attire. There are a lot of articles out there on job interviewing and also tips on salary negotiation, which is a very tough thing if you've never done it before. And I'm really bad at it!

You probably want to encourage your child to just read up on this, I'm sure there are plenty of articles out there with tips on that kind of thing. If you have any contacts as far as friends, neighbors, co-workers that are working for the company where they're interviewing, or just in that field or the position that your child's going to be interviewing for, you could maybe have them go out to lunch with them, or just have a phone conversation, just get some tips on whether or not they want that kind of position or to work for that company. Anybody have any tips, Miriam go ahead.

Miriam: Yes, there are counselors and tutors who help people learn how to interview.  I think especially when they come out of college, when they come out of high school, it might be useful to pay for some sessions to help the kids learn the interview process. What is appropriate, what is not appropriate, how to answer certain kinds of questions, how to “read” the interviewer when they're in the interview, how to “read” how it's going; how to learn ahead of time about the company that you're interviewing for or the job or the position so that the employer, prospective employer, thinks you're excited about the job.

Carol:  I think that's a useful way of approaching it, great tip.  I don't know if I would have thought of that. So that's a great tip, and it's probably well worth any small amount that you would spend on that for like you said, one or two sessions. And the other thing is, it may not have mattered so much, but nowadays it's so competitive I think it's a useful thing to do, definitely.

Okay, so great. Now they have the first job, the real first grown up job, and I think it was Miriam who talked about this, or other people talked about this, but consider matching their IRA.  Most children aren't going to be in the position when they get their first job to contribute to their 401(k) and also a Roth IRA outside of it. They may be, but if you were able to and you want to, it would be a good thing to match their earned income and put it into a Roth IRA.

And this applies to even high school jobs they have, any job they have. Because most children, if they're working at McDonald's in high school, they're not going to want to put all their earned income into a Roth. What fun is that? They want to be able to have some spending money – but you really don't want to pass up the Roth, you only get so many opportunities in your life to contribute to a Roth, there's only so much per year. So you want to start that, as it's well worth it with the compounding nature of that kind of IRA, especially tax-free. If you're able, it's a great thing to match earned  income into a Roth.

And I keep track of my kids because I want anything that would give them the kind of--I wanted to be fair and equal-- so I keep, over the years, I keep track. This child I put this much into the Roth or whatever.  And then, of course, you make sure once they get a real job, that there's enough money to fund both the 401(k) and the IRA.  If they put all their money, not that they could, if they put all their money into a 401(k), that comes off their taxable income, but they need to have enough earned income left over to contribute to a Roth also. There has to be basically $6,000 dollars on their W-2 that shows up as income for them to be able to contribute to an IRA also.

And it's kind of funny, I had to explain to my daughter it doesn't have to be the same six. Like she's, “Well that's not my money, like I can't.” You know it doesn't have to be the same six thousand dollars, it could be a different six thousand dollars, but it can't be more than that.

Now when they sign up for their job, they're usually going to have a lot of choices to make as far as choosing, if they're lucky enough to get benefits, choosing health plans. There's going to be all these high deductible, low deductible, plans. There's going to be one that has a better prescription plan. It's going to be complicated. There's going to be one that has an FSA where it costs more but the employer puts in $500 towards their HSA or FSA. And your child, if they don't have experience with health insurance they may not even know what a deductible is, what's a co-pay, what's a co-insurance, what is the negotiated discount, what's an EOB [Explanation of Benefits]. You're probably going to have to explain all this. This is probably one of those things they're not going to be able to absorb the information until they need to know.

A good idea would be once they go to the doctor, show them you can log on to your insurance account. You can print out your EOB . Here's the full price of this lab test. I always get them, they're like $300, but after the negotiated discount it's only $30. And then just explain all that because it's very confusing.

Then they're going to have to decide how much to contribute to their 401(k). They may have options as far as pre-tax Roth. They may not understand what the company matches, how many years it takes to vest. If they're going to quit two years and 11 months into the job and it's vesting at three years, you want to know that because if you only have to stay an extra month to get vested you might as well stay. So that's a good thing to know.

When they get the first paycheck, you want to go through their paycheck stub with them and explain that just because you're making $50,000 a year, you're not getting $50,000 a year. They may not understand what FICA is, most may have an idea about federal income tax, but it all comes out of the paycheck. They're going to have health insurance to pay for out of their paycheck, they're going to have 401(k) funds taken out, FICA  tax withholding, etc. Explain to them the tax withholding, that if you don’t take out enough, you have to settle up with the government at the end of the year and you may have to pay more.

So let them make their own choices after you explain everything. But as we stated earlier, if they're procrastinating, if they're not getting around to it and you really think if they never ever sign up for a 401(k) that price would be too high - you don't wait five or ten years and say “oh, did you ever sign up for it, oh no. I never got around to that” – you're going to have to nag them if they don't do it because that's definitely something that the price would be too high to skip doing.

Does anybody have any tips on helping your child navigate getting set up for their first job and getting all their benefits signed up, if they're lucky enough to have them? Any tips? 

Okay Miriam go ahead.

Miriam: I have found that with my kids, and with their friends, they do not realize that when they retire they are not going to retire like my husband and I retired, because we have pensions and also because we diligently saved in addition to the pensions. And nowadays the employers do not offer pensions, there are very few pensions out there, and the goal from employers is to have the employees save for their own retirement through these different plans. My kids always had the attitude of, “well don't worry Mom, I'll have plenty of money in retirement. Don't worry, I'm going to get a good job. I'll be fine.”

They obviously do not get it.  I simply would lay out anything I found, any graphs, any spreadsheets that I found that were appropriate for teenagers and for college kids to show them what compounding does over time. You have to have that money in the account to compound and the more you have in that account to compound, the more you will make. Don't you want to make money, and don't you want to have that for your retirement? Because otherwise you will be -- and that's when you give them Bill Bernstein's book – and it says on the first page or the second page, you will be living under a bridge eating cat food.

You have to save a certain portion of your money over the longest period of time, and then that money works for you. They will get it when they see this happening. And they only see it happening if they contribute to a 401(k) or to a 457(b) or to an IRA over time.  Then you just lay out those statements. You lay out the graphs if you can print them out on Morningstar or on Vanguard or Fidelity. And you print it out and you show them how the contributions, even though they may be small every year, add up.

And even now, this is a good time, I show my kids – especially my younger son has a Schwab 401(k). It's really, really interesting to show him the graph from when he started that job to today. If you look at it, you select that graph and you show him what it points out:  his one year earnings, and it shows the graph of his contributions and his market value of his account, his 401(k). Well most of it is in red. It's down below. He's lost money. He's lost 16% this year. His what is it called, his whatever it's called, what he's earned this year is down 16%.

But if you change that graph to:  from the time he began his job there to today, which has been about three years, three and a half years. Well it looks very different. The graph looks beautiful. It shows him contributing and the market value going up, up, up to today. Goes down a little bit, so he can see that while it looks like the world is ending today financially on Wall Street, in his account it's not. And it's not ending because he is contributing regularly, little by little. Every month he's contributing, every paycheck he’s contributing. Actually he's contributing and because it's invested in mostly stocks, it mostly goes up.

Now I can get into later on, if anybody wants, we did an experiment with bonds. Two types of bonds. So to try to teach him a little bit about that, and also I’m learning from that too. But mostly he's 80% to 90% stocks, so it goes up. And then he also has his Vanguard account. Anyway, you can make a huge amount of money, these kids can make a lot of money, if they are consistent in contributing as much as they can early on.

Jonathan Clements had a wonderful article years ago about how if you, if the kids could be more frugal now, they benefit later, if they do that now – not buy the big TV’s, buy a smaller TV. Not buy all the new gadgets and not buy a new phone every year, hold on to it. Be more frugal, more careful in your spending when you're young. It's not as much fun, especially if you have a group of friends who like to go out and have fun and spend money.

But when you are in your 40’s and 50’s and you’re really tired of working, especially if you are tired of working at the same job for 20 years, 25 years, you will not feel so caught, it will not be such a terrible thing if you step back and take a sabbatical. Maybe change jobs in your 50’s. If you're a techie you may not have any choice. Maybe your company may hire a young techie just out of college, two of them for the price of you. So you may be unwillingly downsized.

At that point when you're in your 50’s you won't be so upset, you won't just panic that you haven't saved enough for retirement. You will look at your account. You will realize over the years the account worked for you. It made money by compounding over time. And you can take a little breather. You can take a little break and not panic. Or you can continue on and cut back just a little. In other words you have more options, you have more flexibility rather than being stuck.

You have to look ahead. These kids don't want to look ahead, but around the dinner table my husband and I can talk about looking ahead. And not suggesting that they do it, just pointing out that it could be done, among friends. You know, bring your kids in with your friends and talk about things. Bring them to the Bogleheads conference. There's a young kid in high school who used to come with his Dad to the conferences!

So that's what I see with my kids, and what I see with their accounts. Also the 401(k)’s are normally pre-tax, and then the IRA’s we use are the Roth IRA’s, which are after-tax.  The good thing about that is that when they get close to retirement they will have both a good amount of pre-tax and a good amount of after tax. And another good thing is that if they contribute as much as they can to 401(k) that is taken out before taxes on their paycheck, then that means if they have a little paycheck, well you have little taxes too. Your taxes are lower. So you have  more money available to you to spend right now from your paycheck because you're not using it to pay for taxes. You can show them this and then help them with their 401(k) asset allocation, mostly stocks, maybe some bonds. And it will work if they stick with it. They will see. Make them open up that statement and show them how it works. It really does work.

Carol:  Thank you Miriam. Just the only thing I want to add is it's so hard when you're young to realize that you are actually going to be old one day. What I'm saying is that theoretically when you're 20 you're going to be 70 one day, but it's hard to, it's just a hard concept, it seems so far away. So thank you so much for all those tips, Miriam.

Okay. So I guess the goal would be to, eventually, they would move out. If they do continue to live at home, you want to set clear expectations as to a time frame, who pays for what and does what work. And this is not necessary-- you know, this could be a great thing because it could allow them to save up a lot more money the first couple years after college or after high school by living at home.  But just make sure that you have a time frame agreed upon by everybody. Well I guess it doesn't even have to be agreed upon by my child. It's up to the -- it's your house-- so it's up to you to set the time frame. And then also who pays for what and does what chores if you want them to do a little bit of work around there.

Most people don't make them reimburse for everything you buy at the grocery store. If they drink a cup of milk, you're probably not going to do that, but if you  buy anything major, maybe you're going to want to have them reimburse that kind of thing.

Usually these days a lot of kids, they're going to be on the car insurance, the cell phone plan.

We have the toll tag plan and my kids are actually still on our toll tag. You just set forth rules about when they're going to, when they want to separate from all these plans. Well I think it was Keith who was saying a lot of times it just makes sense to keep them. On the contrary it's going to be cheaper overall. I think I have a thing later, but like with the cell phone we’ve got, you know, grandfathered into a great plan, and it's a family plan. And it would cost them so much more to get their own, just to get their own. It's only $25 a month. It's just  no big deal either way. So you can keep them on, it's no big deal.

You're going to have to explain to them if they don't have health insurance with their job, why they need it – even if they say “oh I'm healthy, I don't need health insurance.” They can't explain why they need it. Even if they're healthy, they could have a major accident or a heart attack, it's going to bankrupt them and wipe out everything they have.  So just explain to them, encourage them to get a plan through the ACA if they don't have one through work, even if it's the highest deductible they can get.

When they're moving out they may need a little bit of – they may not realize what all expenses are going to be involved. They may not realize they have to pay for gas, water, sewer, garbage, electricity, and the internet. They may just take it for granted that, you know, they've been taking that for granted while living with you.

If they do not already know how to use a spreadsheet, this is a great time to learn – “Oh, here's a little spreadsheet. Here's how I do my monthly budget.”  You can show them, maybe make a simple spreadsheet and show them how to do that. They may not think ahead, but you know in addition to just your monthly expenses, you're going to want to set aside money for long term things like new cars, vacations, gifts, things like that. That's all part of your budget even though you may not necessarily spend that every month.

And now I don't use any of this, but I know there's a lot of budget software out there like YNAB, which is You Need A Budget. I've also heard of Monarch Money, Danceman, Every Dollar Spreadsheet. So if anybody has any experience with any of these please raise your hand after this slide.

And then make sure they have a method of remembering to pay the bills because of course one of the worst things you can do for your credit  score is to forget to pay your credit card bill on time. If they do buy a house, explain and make sure they understand there's so many expenses with buying and maintaining a house. You’ve got mortgage, property tax, insurance, maintenance, HOA [Homeowners Association] fees, utility, lawn care. There's just so much.

As far as closing for the house, there's going to be closing costs, PMI [Private Mortgage Insurance], escrow for mortgage payments, insurance and property tax. As with the other budget expenses, they should be setting aside money for home repairs. In 20 years you're going to need a new air conditioner, a new roof, a new fence, new washer dryer. There's just so much to save up for when you have a house.  They might need reminders - you have some, a lot of maintenance you’ve got to do. We have our air conditioner serviced twice a year, you’ve  got to change your filters, that kind of thing. Smoke detector batteries.

If you're in the position to help with the down payment, that would be a good thing to help them with, just to give them a little boost.  These little boosts we can give our children without spoiling them or subsidizing them too much. We're going to kind of talk about that later.

Does anybody have any tips on helping your child when it comes time to move out?  Oh yeah, Miriam, you have information on that, don't you?

Miriam: Yes, yes. One thing we have to remember is that our children, most of our children, grow up in a different environment, a different time than we did. When my husband and I got married and we were out of college, our apartments were furnished with wood from Home Depot and bricks, you know those were our shelves. Sometimes it was the pantry in the kitchen too. We would have to save up just to buy little things. I remember we would make our coffee with instant coffee, boiling water on the stove, until my Mom said, “You know, really, you guys, you should have a coffee maker.” And she bought us a little Mr. Coffee.

So our kids when they move out, I've noticed they want the TV first of all. They want a big TV, not a little one, a big TV. Obviously they have their computers and their cell phones. They want the kitchen already – you know they want everything in the kitchen already - including a blender. And they want the whole apartment set up as our nice suburban family home. But our nice suburban family home is the result of 40 years, 50 years, of working and saving and cluttering up the house.

And so there’s a tendency for the kids to say, “Well, I'll just put it on the credit card and then I'll pay it off.”  So then starts the cycle of credit. A cycle of not saving for something. The cycle of buying it now and then putting it on credit. That is very difficult for some kids. And I mentioned that my kids, they're all different, and some get it right away and they would not put – they're just really careful about their credit cards. And the other ones are more, I'll just put it on the credit card. I can pay it off. I have a good job. But meanwhile the 401(k) suffers. You know they're not putting their money as we would prefer. They're not balancing out as we would prefer. They're not, their priorities are different. 

My parents and most of our parents grew up in the Depression. And my mother told me that her mother would have to stuff her shoes with cardboard because there was no money to put new soles on the shoes, let alone buy new shoes. Now you just put it on the credit card, go buy a new pair of shoes. So people have told me, and on the Bogleheads forum there are many, many threads of how it is now, to realize that your children grow up in a different environment, and that they are just used to having all this good stuff as if they are entitled to it. I don't know. We try hard not to let them see that that's not the way it is, but it is hard because that is the way they all grow up. That's the way their friends are.

In terms of another way of handling that, what I would do with my kids, I realized in high school they didn't have a clue how much a roof cost. They didn't have a clue how much a car really cost. I started putting our bills on the kitchen counter. If we had to have the roof cleaned, the bill went on the kitchen counter. And they would look and they would say, “$600, six hundred dollars, to clean the roof. Are you kidding? I can have my friends, we can go up there and we can just…”  Well it doesn't work like that and then when they see $6,000, six thousand dollars, for a new roof catches their eye after a while, especially when they're in college. So I would put the bills on the kitchen counter so they would realize how much it really costs to have a house.

Also on moving out, and going to college and moving out of college houses, I learned that my kids, when they went to college we paid for the dormitories, we paid for the fraternities, we paid for the sororities, we paid for wherever they lived. But when he graduated college, when at his graduation, when they were done, he said he sent me an email, and said “this stupid landlord is not returning our deposits, our security deposits.”

Now he lived in this big house with all these, you know, guys and sorority girls and whatever. And it was this huge house the landlord had put together as two, and “the stupid landlord is not returning our security deposits.” So I said, “ Well, why?” He said, “Well, I don't know why.” He said he says this, he says that. So I took the landlord's phone number and I called and I asked the landlord, who was this nice guy, and I said, “Why are the kids not getting their security deposits back?”

And he said, ”Well the bathrooms are full of mold. There it is mold from top to bottom, side to side. It has never been cleaned.” My son said, “ Well Mom, it was moldy when we moved in and we were studying, we didn't have time to clean.” Then the landlord said to me, “There was a burned out microwave in the kitchen and it was attached, somehow it was attached to the floor. I had to have workers take out the microwave.” And my son said, “Whitney, she burned the popcorn in the microwave. I don't know how it got on the floor.” And then the landlord said, “There was all this, mattresses, a mattress and a box spring and all this stuff in the backyard and I had to hire a junk mover to come remove that and to clean out the backyard.” And my son's response was,”Oh, that was Anthony. He got into the Naval Academy and he didn't know where to put his stuff.”

And I had images of Anthony piloting a US Navy ship in the ocean but he didn't know where to put his stuff. And I told my son, and my son says,”I'm going to sue him [the landlord].” And so I said, “Okay. But really you should have taken the reins and brought that house together, and said, to get our security deposits back we have to do this, this, and this. I mean that's what you should have done to get your security deposit back.” Now mind you it was my security deposit I paid, and my husband paid, the first month's rent, last month's rent, and the security deposit.

From that point on, any security deposit was on the kids. No matter where they go. Even now they're renting apartments. They're renting condos. They pay the security deposit. Well now they're all paying their rent too.  But in the beginning, that's one thing you can tell them they pay, that like we say, if you don’t have money in the game, if they don't they're not responsible for the money if they lose it - and even the best kids who you think are responsible, they don't get it until they have put in their own money.

Carol: Interesting story, Miriam. Thank you so much for sharing that.

Okay investing basics. So this would be things like where to keep the taxable savings, or for that matter low-cost brokerage. I know today there's a lot of different things like robo-advisors and I'm not really even familiar with those. Someone had mentioned a Fidelity youth account which has parental oversights and which can transition into a Fidelity brokerage account when the child turns 18. So if anybody has any experiences with any of those we'll be happy to hear that.

And then I did list the – you want to teach your child these, of course you want to teach them the Bogleheads  philosophy – live beneath your means, develop a workable plan, never bear too much or too little risk, you know that would be your asset allocation, invest early and often, like you were saying Miriam, early to get that compounding, diversify, invest with simplicity, doesn't have to be complicated, use index funds to keep your costs down and to also track the index, minimize costs and taxes, never try to time the market ,and stay the course, which is important for right now. In fact, I was calculating we're almost I think we're down about 18% from the high and I just really wish we could just do the 20% so it would be a bear market. Get it over with and then we can maybe, because we all know that I mean a bear market is past due, so let's just get it over with and then we can maybe start looking forward, ahead. But you need to just stay the course through all that.

Okay we were talking about this earlier, but for many topics, especially like investing, things like the difference in a stock and a bond. What's the difference? I was trying to explain to my daughter the other day the difference between a mutual fund and an ETF and you know, she kind of understood. But this is one of those things you have to explain multiple times before it really sinks in. Or sometimes they just won't understand until they see it actually applies to them. And they can only absorb, sometimes they'll say, ”Mom, that's enough for today. My brain is hurting.” You can only explain so much at a single sitting, and then you have to let it sink in.  You can do it again, and then add on.  And on another day, they just can only absorb so much. Like Miriam, you were saying, show them a chart with compounded savings when they start young. That money that they put in when they're young, even when they're older, just grows, compounds so much.

I'm going to go ahead and there were a couple questions from the RSVP’s. Someone asked about hiring your kids and paying them so they can officially invest in their IRA. What is the youngest age that you can do this and has anyone done this? So what I looked up today and someone did answer this in a chat, but I'm going to repeat it: your child regardless of age can contribute to an IRA provided they have earned income. But minor children cannot establish IRAs on their own. The parent has to set up an account with the child. It is the child's money and account, but since they're underage the parent needs to sign the paperwork.

As long as they have earned income they can contribute to an IRA. But for jobs that don't have a 1099 or a W-2 it is important to keep records of the type of work, when and where it was performed, and who paid the work, and what amounts. And this type of job that doesn't have a 1099 or W2 is often the child's first job. Examples can include doing yard work for neighbors, watching kids of a family friend, or helping a local organization with some temporary work.

If you're going to want to use these earnings as a basis to make a contribution to an IRA you're going to need proof that this is really earned income. and then also you have to watch out for the tax implications. If a child or teen has earned more than $400 in income they must report the income on a Schedule C when filing taxes. If the child doesn't get a W-2 for babysitting, which they're probably not going to, it's up to the child or the parent to keep good records or logs. In other words, if you don't have a 1099 or W-2, keep as best records you can of either the transactions, or just hand write a log. And keep in mind you may have to file taxes, there may be some tax implications for the child.

One of the other questions – and what are the positives and negatives of a custodial brokerage account – are there any good books on the topic of teaching kids about money and investing? I do have a list of books at the end but it wasn't specifically too much about investing, but more about just teaching your kids, like we've been talking about the basics of managing money and that kind of thing. So those will be listed at the end.

And somebody asked, other than 529’s, the kid’s UTMA  brokerage accounts, and custodial Roth IRAs, is there anything else my kids can be doing? The kids are fifth and eighth graders? I would think if they have a 529 at that age and any Roths, I think they're doing great for a fifth to eighth grader. So I'm not sure what else you could be doing at that age. That sounds great already.

Does anybody have any tips on just teaching them investing basics? Helping them get set up with the – I think Miriam you already talked about they had at a young age, they had a brokerage account that they started with. And sometimes they have a lesson that's kind of hard to learn, if it goes down right away. That's kind of a hard lesson to learn, but it's a good lesson.

Miriam:  Yeah. They also, many of them, want to now go into Robinhood. They want to buy stocks, like they want to buy Elon Musk, what is it, Tesla. They want to buy Amazon. They want to buy Bitcoin. Many of them talk about it. My kids have not really paid much attention to that. So I think that maybe after years of listening to me, hammered into them that mutual funds are safe. They're safe, you don't have to research your stocks. You don't have to worry about stocks at night. You don't have to worry about having that awful feeling that you made a terrible decision and bought a company that is going to go under. That mutual funds are safe,maybe it did sink in.

On the other hand they will often come back and say, “Well no, it's not going to go under. You know Tesla will never go under. Microsoft will never go under.” And then you can say well, what about Eastman Kodak? And of course they'll say what, who, what's that, who's that?  You know, it takes a while. They'd only listen so much to their parents. They have to listen to other people. That's where the Bogleheads forum comes in. Try to introduce them to forums like that. You know, okay if it's not the Bogleheads, go to some other financial forum.

And try to read Bill Bernstein's book. If You Can.  It’s really wonderful for children, for kids, not children. I'm sorry it's from high school, college, and it's called If You Can. It's a little tiny book. You can get it on Amazon, with a little nest egg on the front. It's fairly cute. I bought a lot of them and I would give them away at work as presents to the young people who would come into work. And I would – you know I was like an old preacher walking around with my book – but it was helpful to the young people just starting out.

For my kids, when I went to a Bogleheads conference, I had Bill Bernstein, Dr. Bernstein, sign the books, autograph the books. So each of my kids has an autographed book from Bill Bernstein. So I looked at what he wrote and he wrote, “Kids read this book. There will be a pop quiz!” And then he wrote his name. But it's a great book and it lays it out pretty clearly, that if they don't get their act together and invest at least something regularly, get into that habit, they are going to be in deep trouble as they get older because they will have missed out on time, and they will have missed out on compounding.

There are other writers.  Another writer who's coming to the Bogleheads conference is Michelle Singletary. She writes for the Washington Post, and she has a book out. I haven't read her book but she is great. She just lays it out for kids and for young people investing. There are other--oh I am going to say Bill Bernstein's book is also free on his website. You can download it. It's a pdf and his website, there's a link to that at the end, Efficient Frontier, I think under “resources” [on the slide] there's a link for that.

So that's what I do, and for presents. I give them books. I give them Jane Bryant Quinn who has a wonderful book called Make The Most of Your Money Now  and it's a thick book, like this thick. It's not something you read from cover to cover.  If you want to know about life insurance you'll read that book on the sections on life insurance. She's very much a Boglehead and I've read about her. She's invested  basically at Vanguard and she also, if you want to know about the difference between 401(k)’s, whether to do a Roth 401(k) or a regular, you can just go to her chapter there and she will lay it out in very easy terms for people.

I tried to get her to come on to speak and I was unable to contact her directly because I believe she has retired now. But her books on the Bogleheads forum, they talk about her books as being a very, very helpful compendium of all things investing that are easy to read as the kids start out and move into their own lives.

Carol:  Great. Thank you so much, Miriam. Let's see what we’ve got. Okay a few things about taxes. If your child does have a brokerage account make sure you're aware of the Kiddie tax. And they're probably not going to be earning enough for that to kick in, but just read up on that real quick and I did. There's a link to a good article on Kiddie tax at the bottom of this. You know when it applies.

So when your child gets even their first job at McDonald's or whatever, they're going to need to know just the basics of taxes. What is the difference in gross income, taxable income, standard deduction, tax brackets, what's a capital gain.

And then how does the 401(k), health insurance premiums, et cetera, affect their W-2 and their taxes. Explain you can file on paper, you can file online. Make sure they know the deadline, April 15th, that they can do an extension if they need to. And then when it comes time to do taxes, if you live nearby, what I do is I have TurboTax and then I let my daughter come over and do her taxes. And I sit next to her. But I make her sit in a seat and actually do the typing and enter the data .But I'm sitting next to her and helping her out. So that seems to work pretty well.

Does anybody have any tips on kids and taxes?

Miriam:  I do the same thing. I make them sit next to me to do their taxes. My older son got it and he actually still does it. My daughter, well I still do her taxes. And sometimes she comes over and helps me.  My younger son, I do his taxes with him, and he's got it because he's a techie and so he actually uses TurboTax. Now I never used TurboTax until recently because I’m older and I'm used to doing it  with pencil and paper and calculator.

But it's a very--what is useful about doing your own taxes is that you then understand how the tax system works. You can figure it out after all. After a while you just get it. Oh, there's income and there's different kinds of income. Oh, and then there's the standard deduction. Oh, it comes off, and then there is I subtract what I paid in and then the rest is mine. Oh, okay, I get it.

Income, eventually they get the income part of it and they realize that oh, what is in my 401(k) is not there in the income. Well where is it, where do I pay the taxes on that ? When you're retired and you're in a lower tax bracket, so you'll pay lower taxes on it eventually. That kind of sinks in, especially if they can see it. If they're visual, especially, they can see it on a 1040 form. They can see it working, that's one of those things that just takes a while to sink in.

Look at the chat Carol, there was one thing they asked about the books. And I have it here. This is the one book, I don't know if people can see it.  I have the book on my shelf, Making The Most Of Your Money Now, that is a thicker book by Jane Bryant Quinn and it's like a compendium of everything financial for families and for young people starting out. And then, this is Bill Bernstein's book, Dr. Bernstein's book. There it is, If You Can, and this is a very thin book as you can see. But it is absolutely packed with information. Very succinctly, kids you’ve got to get your act together or you are going to be in big trouble when you get into retirement. Here's his signature.

So those are the books that I would recommend. Oh, there's another interesting book called The Richest Man in Babylon. I don't know if anybody's ever read that. I've heard about it for years and I didn't read it until a couple of years ago. I loved it and I gave it to one of my kids. And they were like, oh come on, this is ridiculous. But one of my sons loved it. So if you're a kid, if your child likes it, it is lessons, financial lessons, set in ancient Babylon. Sounds ridiculous but it's not, it works. You can see yourself in that, you can in the stories that are presented there. You can see yourself today. And it was written, I think, in the 1930s or the 1920s by maybe a banker who saw that his customers didn't understand finance, and he would write out these little pamphlets and he put them in the bank, put them there for people to pick up and read. It's a neat book. And also, of course The Millionaire Next Door. Many people read that book and they like that.

Carol:  Right, that's a great one. Okay, thanks Miriam. Now I think this is our last slide, other than there's resources. So we do have a slide on continuing helper gifts. And what I mean by that is everyone gets older. So there's two different sides to this. We'll do the positive side first.

So once your kids get settled, then they have a job. You know they're responsible. You know they're not spoiled. You know they're good with money. Then if you're able and you want to, you can start--maybe you might want to think about giving some special gifts to them-- and I like this book, Launching Financial Grownups by BobbI Rebell. What she said was, “my Mom and Dad were able to balance making sure I knew that they would be there in a true financial emergency with making sure I never wanted to be in a position to need their emergency support. So you want to be there for your kids if they really, really need you. But you don't want them to need you.”

And what I've been reading is the experts say, in general, don't subsidize a higher lifestyle for your child on a regular basis. Don't just say, “I'm going to give you $1,000 a month for you, to help you with your rent or whatever.” You want them to be able to support their own basic needs.

But what I like is this term that Bobbi Rebell coined in her Launching Financial Grownups book. I don't know if she coined this term, but she used the term “strategic financial boost.” And what this is, it’s a one-time limited financial boost to basically get your child, get them started to get them to the next level. For example, they have this great job, or they could get this great job, in New York city, but you know they need a little bit of help to move, to get the first apartment or whatever.

Or they just got out of college. They have no money saved. They may need a little bit of help, just a little bit of help for a couple months until they get the first couple paychecks. They may want to take a training course. Help with a house down payment. Pay for them to stay on the family health plan until they get a job with health insurance, or until later.

But all these things are just temporary. They have a limited time period there, or they're just one time things. And you want to kind of keep these items separate, or specific for specific purposes. Like I said, the experts that I read say you don't want to supplement them on a regular basis to increase them to a lifestyle they can't afford based on what they're earning. You want the child to have pride and be able to provide their own basic needs. 

There's page two to this slide. So, oops there we go. And as I mentioned earlier, to me it's okay to continue to pay some small bills that make sense. If you have them grandfathered in on the family cell phone plan, you know that's not a big deal.

Here's a couple of ideas if you do want to financially help your adult children later in life. You know once you determine that they're financially responsible, and if you're able and if you want to, one idea is to pay for family vacations for the whole extended family. Fund grandchildren's 529 plans, and don't forget about possibly having to file IRS form 709 if your gifts exceed the annual exclusion amount which is $16,000. And one thing they mentioned is that it’s permissible for one spouse to give $16,000 and the other spouse can give $16,000, and you can give to your child’s spouse too, if you want to multiply those gifts.

One other idea that's been mentioned, of course not everybody's going to be able to do this, but to consider that if you're set for your own retirement and you know your children could use a boost, one thing you could do is disclaim any inheritance you get from your parents.  You could consider disclaiming your own inheritance and letting it go to your children. If you do plan to do this, you want to make sure your parents’ wills and IRA’s and everything is set up to where you would go to your children, if as contingent beneficiaries, you disclaimed them.

Hopefully by this time your children will be older and able to handle receiving the inheritance. And like I said, you may be already retired. You're already set. You don't need the extra money, whereas your child may be just in the phase of life where they could definitely use that extra boost. Not that they need it. But they could use it to maybe get a little bit bigger house, maybe some remodeling, and pay for their child's college. Maybe both parents don't have to work so hard. Maybe to have young kids at home, one of them could stay home, that kind of thing. So just something to consider. And also watch out for there's something called the generation skipping tax that might come into play if you do this strategy.

Okay there's one question on the RSVP about this:  “what are options for leaving inheritance now that the stretch IRA has been eliminated?”  And if you're not aware of what the stretch IRA was, it's if you left, for example, your child an IRA, they used to be able to stretch it out, and I don't know the exact rules, but basically over their own life expectancy. And a few years back they [Congress] changed it where the child has to take it out over 10 years. And this could be a big problem if you leave a large taxable IRA to anybody, a child or anybody else.

If your children are working, they're already in a pretty high tax bracket and they inherit “You have a million, two million dollar IRA.” They're going to have to take out. Now they could wait till the end of the 10 years, and well there's other rules about RMD’s, but I’m not going to get into that. But say they spread it out, $200,000 a year, $100,000 a year withdrawal from the inherited IRA, that's going to put them in or could potentially put them in a much higher tax bracket.

The only suggestion I have for that is convert as much as you can to a Roth because if it's in a Roth and they still have to take out the money, they don't have to pay tax on it. So I don't know if anybody else has any other ideas on what to do about what  they call the death of the stretch IRA. Does anybody have any tips on that?

I listen to a podcast – his name is Jim Lange – he has a lot of podcasts and articles. They were actually anticipating the death of the stretch IRA for about five years before it happened and he has a lot of podcasts and articles and things on that. So that's about all. 

Okay. And then we have, like I said, we have a whole page of resources. There are a few Bogleheads discussions that I bookmarked. There are articles from Clark Howard about credit cards, debit cards for kids, that kind of thing. What else do we have? Some articles, I found Seven ways to raise money-savvy kids. There's JL Collins website on there. The last link is all about the Kiddie tax and when it applies. 

Then there are books, most of which I have skimmed through to prepare for this. Some of them  I got from the library, some I actually purchased. That's Launching Financial Grownups by Bobbi Rebell, and it is a really good book. Then the last page has podcasts that are of interest about teaching finance to children.



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