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What’s the Best Way to Teach Kids About Money?

the opposite of spoiled book review

If you’re a parent looking to deepen (or just start) your conversations about money with your kids, then The Opposite of Spoiled should be your next book to pick up. It’s the latest release from NY Times columnist Ron Lieber who has extensively covered families and finances.

If you haven’t read any of his previous work some of my favorite recent columns are Letting the Kids in on the Charitable Giving Conversation, Elmo and Sesame Street Teach the Basics of Spending and Saving, and Teenagers Do Not Need Smartphones, So They Should Pay for Them

Teaching Your Kids About Money and Values

With the Opposite of Spoiled, Lieber discusses how parents teach not just the basics of finances with their children, but help them use money as a reflective of positive values such as generosity and entrepreneurship.

It can be intimidating to have your kids come up to you an ask blunt questions about money. Unprepared we may be tempted to deflect or distract, or tell them that they’re too young to understand.

Lieber shows how money can be a valuable teaching tool, one that can help children learn how to take care of themselves, their own families in the future, and their community. The Opposite of Spoiled has plenty of studies and stories from families dealing with issues that parents are faced with on a daily basis.

There are plenty of opportunities such as allowances where parents can explain why it’s important to save, how to spend money wisely, and where kids can give wisely. ron lieber opposite of spoiled review

Moving Beyond The Money Talk Into Conversations

For some parents, they may feel that talking about money is strictly about checkbooks and budget, but The Opposite of Spoiled does a fantastic job of

I appreciated Lieber’s focus on developmental milestones rather than giving hard and fast rules about when to discuss certain money topics. Let’s take for example allowances.

Do you tie to household chores or is it a gift for the kids? Lieber suggests looking at it as a teaching opportunity where you allow your kids to learn from you about the basics and have them gain practical experience on a limited scale.

He then breaks down how you can start off with a conversation about needs and wants. Young children can appreciate that there are some things, like toys, that are wants and then there are important things like food.

As they get older all of you can start thinking of wants and needs not as completely separate columns, but as a scale. Food, shelter, and the essential clothes on one end and name brand clothes, electronics, and games on the other.

Conversations can then move beyond the obvious and instead looks at where to draw the line on where a particular purchase falls.

Thoughts on The Opposite of Spoiled

I highly recommend that you check out The Opposite of Spoiled as it does a thorough job of tackling some of the trickier situations of raising a money smart kid. Lieber offers practical advice, ideas on how to start, and good deal of research so you can find the best way to teach your kids about money and more.

I’d love to hear from you – what are some of your child’s biggest money questions? How have you talked to them about your values and money?

Introducing Money to Kids

introducing personal finance to kids

If things seem quiet lately on the site it’s because I’ve been slowing down in preparation of the (hopefully soon) arrival of our second daughter. The house has been cleaned, the bags have been packed, and everyone is on stand by.

I’ve been spending this month making sure that all of my obligations for work have been met so I can enjoy some time off when our baby girl is here. I’ve also been reading a fantastic book for an upcoming review and post – The Opposite of Spoiled. It’s timing couldn’t have been better.

Our first daughter is now three and a half and is extremely interested in EVERYHTING that we so. Questions are constantly spilling out and including money – or at least the basics of what money can do.

There’s so much more to money than just budgets and investing though. We want to show our kids that money can be a tool for many things including taking care of herself, family, and helping others. Inspired by the book, I wanted to share a couple of ways we started talking and including her.

Using Grocery Shopping as a Teaching Tool

One of the first ways we started introducing her to money concepts is with our grocery store runs. They’re usually short trips to get milk and other perishables so she’s more likely to pay attention for the majority of the time.

As we put items in the cart, I’ll ask her to count what we have. It’s good practice for her and a way for me to keep tabs on how much we’re buying.

While she isn’t ready to discuss budgets yet, we do want her to get the idea of having to make choices on what to buy. For her, we use afternoon snacks. With our grocery trips she gets to pick the snack she’d like for the week.

As a toddler some of her favorites include those Goldfish crackers, chips, and of course cookies. They tend to be in the same area of the store so she’ll usually want to get them all. We explain to her that she can only pick one. At first she was upset and would fuss, but now she starts to look forward to it.

Even though it’s only a minute of two, she will sit there and consider her choices before picking her snack.

Collecting and Counting Coins

She loves to count the coins and watch the jar’s numbers change as she adds the money in. When it’s sufficiently full we’ll divvy up the money into three categories – saving, spending, and giving.

What we’ve been doing so far is having her savings deposited at our bank (Capital One 360). We have used them for several years for our joint accounts and have found them easy to use.

Now that she’s getting more interactive with other kids and has her group of friends, I think we’ll start introducing giving into the equation. I think it would nice for her to start getting either small gifts for her buddies or supplies so she can create something for them.

When we’ve done thank you cards sometimes she’ll happily ‘sign’ her name and deliver the cards. I think she gets a kick out of seeing people smile. As she gets older we’ll talk more amd come up with fun ways to include her with other charitable activities.

Thoughts on Teaching Kids About Money

We are definitely not experts, I just wanted to share some things we’ve been teaching our daughter. I’d really love to hear from you about how you introduced money to your kids. What lessons did you start off with? How old were your kids? What seemed to work really well and what didn’t?

Finding an Investment Strategy That Works for Us

investing tips couples

Every so often it pays to go ahead and review your portfolio. With 2014 over, I spent this week checking up on things to make sure we’re staying on course with our investments. Since I’m looking at our accounts, I thought it might be helpful to explain our process and strategy.

Index or Actively Managed

For our accounts we prefer to go with passive investing as our overall strategy. (We cant’t completely acheive this as my husband’s 401(k) has limited options.)

The biggest difference with index and actively managed funds or ETFs are the goals. With index, you are simply trying to track whatever benchmark you’ve chosen. Either all or a representative sample of a specific index are purchased. Most of this is automated.

Actively managed’s goal is to beat the market or at least those similarly constructed funds. A fund manager works with a team to research and try to predict what securities to invest in.

In theory, most people would love to beat the market, but looking at history and the numbers, there are plenty of investors who come out ahead by going the index route. Two big reasons are:

There are exceptions of course, but most people don’t have the time and resources to make active investing a better option over the long term.

What We Invest In

For my retirement portfolio, my overall investments is based on the David Swensen‘s model. He’s Yale University’s Chief Investment Officer and author of Unconventional Success: A Fundamental Approach to Personal Investment.

For personal investors, he recommends a portfolio that includes:

  • Domestic Equity (30%)
  • Real Estate Investment Trusts (20%)
  • Foreign Developed Equity (15%)
  • U.S. Treasury Notes and Bonds (15%)
  • Emerging Market Equity (5%)
  • U.S. Treasury Inflation-Protection Securities (TIPS) (15%)

As you’ve probably figured out, this portfolio’s strength in how diversified it is without having to a ton of securities. In fact you can construct this portfolio with a handful of index funds or ETFs, making it incredibly easy to track and manage.

  • US Total Stock Market (VTI)
  • Emerging Markets (VWO)
  • REIT Index (VNQ)
  • Total Bond Market (BND)
  • Short-term TIPS (VTIP)
  • FTSE All-World ex-US (VEU)

My husband’s retirement portfolio is similarly diverse.

  • US Total Stock Market (VTI)
  • US Large-Cap Value: VTV
  • US Mid-Cap Value: VOE
  • US Small-Cap Value: VBR
  • Developed Markets: VEA
  • Emerging Markets: VWO
  • US High-Quality Bonds: BND

There are other simple portfolios that you can use for your own investments, just make sure you understand the logic behind it.

Where We Invest

My husband has his IRA stashed away at Betterment.  Basically with them, investing is as easy as depositing money into a savings account. I was able to set up his account in about 20 minutes and it takes even less time to manage.

For my husband who checks his account even less frequently than I do, Betterment is a good fit as it automatically re-balances his portfolio. That helps him to stay on his long term plan without having to constantly check in.

While no investment company can be everything to everyone, I believe that Betterment can offer an easy solution if you’re someone who wants to  your IRA up and running quickly without having to hover. Check it out and see if could be the right option for you.

I use Vanguard to handle my investments. I love them; they have numerous funds that have low fees, meaning more of your money goes towards growing for your benefit. Vanguard is known for having great customer service and being a valuable resource when it comes to investing. Check them out today if this sounds like something you’re interested in.

How We Track Our Investments

Even though we are passively investing, we still want to be on top of our finances. That means we have a system to alert of us of our progress and if anything usual happens. Right now my tool of choice is Personal Capital.

Besides offering a free portfolio check-up Personal Capital also has wonderfully useful ones that can help you optimize your investments including a 401(k) fee analyzer, asset allocation tool, and the latest – a retirement calculator to see if you’re on track for your goals.

Here’s a thorough review of Personal Capital, but if you want to jump in and optimize your investments, you can sign up for free here.

Thoughts on Your Investment Strategy

I’d love to see how you’ve come up with your investment strategy. How long did it take for you to get it set up? How often do you manage it? What resources do you recommend on learning more?

2015 – The Year of Growth and Better Habits

couple money grown net worth

With so much going on this upcoming year, I was looking for a fun way to build our finances in 2015. To help keep us accountable for this year, I’ve signed up for MoneyStepper’s 2015 Savings Challenge.  I can’t wait to see how things go this year for us.

In case you haven’t heard of it, the two main goals of the challenge are:

  • Grow Net Worth
  • Save % of Net Income

I already sent in our annual goal and every month we update our progress. Filling out the spreadsheet, I went back and forth a bit with it – I want to be ambitious, yet considering the big changes I was a little hesitant to go crazy.

In the end though, I decided better to be optimistic than play it safe. After all it’s supposed to be a savings challenge :) So for 2015 we’re shooting to increase our net worth by 25% and have a 15% savings rate.

To keep our joint finances easy to manage and respect my husband’s take on things, I came up with a plan that would put us in the ballpark of getting it done.

The Plan to Achieve It in 2015

If you’ve been listening to the podcast this past week you know that I’m into not just making goals, but creating and changing habits. With that in mind, I’m going to get into how we are going to make this happen.

Grow Net Worth by 25%

Pretty much people can increase their net worth  in two ways – increase assets and decrease liabilities. We plan on tackling both this year – we will be saving more in the joint accounts and we will be paying off the last student loan.

Make Savings a Monthly Bill

For the assets we want to bump up savings and we have a couple of reasons why we’d like to have a larger than normal balance.

First off, we are still awaiting the arrival of our second kid (due later this month!). We’ve saved enough to cover the hospital bill and some other essentials. While we have a general idea of what expenses can be based on our first child, there’s still a big unknown as my work schedule will certainly change with two little ones.

We have pseudo-plan for what we’d like to do, but only time will tell if it’s a practical system. Having some money set aside can be a huge stress reliever as we make this transition.

Second. at some point this year we’d like to sell our current place and buy a another house more conveniently located. Our goal is to reduce our monthly expenses in the long run, so it would mean having a substantial down payment for the next place.

Increase Investing

With the new year, it’s time to increase my investment contributions. It won’t be much since I’m focusing on other things, but it’ll be nice to do something productive on this front.

Pay off the Student Loan

With liabilities, this is the year we finish off the student loan. We have been sending in extra payments twice a month in addition to the regular monthly ones, but things have been on automatic and we haven’t pushed ourselves on it.

Things had slowed down and it was mostly due to loss of urgency on our part. The interest rate being as low it is didn’t really make either one of us feel like we had to get rid of it that much faster.

To accomplish this I will be changing the extra payments, bumping them up 20% and making them weekly. That will speed things up, but it won’t be enough to pay it off by itself. What I’m working towards is building up the business income and using the growth to take care of student loan.

Just why are we putting the energy on big quarterly payments with the student loan? I think the main reason is that this year will be a bit hectic and more unpredictable with the new baby and work arrangement. While I have every intention to work hard and get my business growing, I have no idea how things will actually play out and I’d rather have some cushion around to ride out any rough patches.

Save 15% of Income

This is a more direct goal – we just have to commit to the plan. We will dump this money into a high interest savings account and access it as needed for both the student loan and the house down payment.

We’re making this a regular part of our monthly budget by scheduling automatic transfers into joint savings.

Thoughts on 2015

Okay,  shared some of our goals this year; your turn now :) I’d love to hear from you – what are your big goals for this year? How do you plan on achieving it? Are you doing the Money Stepper Savings Challenge?

Change Your Habits and Own Your Finances

couple money change habits

Today’s post is based on a recent Couple Money Podcast episode on Owning 2015 and Your Finances.

Raise your hand if you’ve ever made a goal and before the week or month was over, you quit. Yeah, me too.

Why is it despite some of our best intentions we fail at achieve our goals? While external factors can affect us, if we’re completely honest I think most of us admit that the fault lies with ourselves.

Many times we set ourselves up for failure because we don’t address what really needs to be changed. Most times we don’t need more willpower, we need better habits.

How to Change a Habit

We underestimate the power of habits and one reason is how easily we slip into them. NY Times reporter Charles Duhigg studied the neuroscience and psychological research behind our routines in his book The Power of Habit.

Duhigg cited a study done at Duke University in his book where researchers found that over 40% of the activities we engage in on a daily basis is a habit.

What Makes a Habit a Habit?

In essence there are 3 basic components to habits – cues, routines, and rewards.

  • Cues – triggers for behavior
  • Routine – behavior that you want to change
  • Reward – why you’re doing this behavior

If you want to change the routine, you have to look at how you can adjust the cue and the reward.

Let’s say you want to do a better job with saving for retirement. You want to contribute regularly to your Roth IRA.

What’s Your Cue?

Basically cues fall into a few different categories

  • Time
  • Place
  • Presence of Certain People
  • Emotion
  • Preceding Actions

Most of the time, we’re not immediately aware of what the cue so when you first try it out you may have to play around to see what your personal cue is.

Indulge in Your Rewards

As much as we like to think we achieve goals based on their value, humans tend to seek out rewards for their behavior or at the very least avoid punishment.

To jump-start the new routine you have to use an extrinsic reward to help you through the transition until the intrinsic reward kicks in. Think of it as letting yourself have one of your favorite treats after a workout until you start to notice and feel the difference of being in better shape.

To be most effective, choose a reward that you’d really enjoy and take it quickly so you mind associates it with the new routine.

Let’s say for every month you reach your IRA contribution goal, you go out that night to one of your favorite restaurants and celebrate with friends.

Carefully pick out the restaurant, which friends to invite, and maybe a theme for the evening. The idea is that your excitement at the chance to celebrate will motivate you to make that contribution. No investment, no night out.

Creating New Routines

So just what behavior can you add or change to get you to contribute to your IRA?

If you’re looking to change your behavior, try to make it as easy as possible. So if you haven’t already, open an IRA with a company that allows free automatic transfers and that will allocate that money for you.

Set it up so it will be sent to your IRA as soon as your paycheck clears.

In essence, that’s it. Changing a habit means breaking it down and tweaking the cue and the reward so you will stick with it long enough for the new behavior becomes a part of your routine.

Thoughts on Changing and Making Better Habits

What are some of your financial goals for this year? What habits are you looking to change?