How can you prepare your child to make dollars and sense of a tumultuous economy? Start as early as possible.

Financial experts say it’s essential to get kids on the road to financial literacy at an early age. And schools, banks and other organizations are doling out new programs with that goal in mind.

“We would never send our kids to school and not teach them how to read, not teach them the ABCs,” says Lori Mackey, founder of Prosperity 4 Kids, a financial-literacy website for kids. “So we have to build that foundation.”

You don’t have to wait for money lessons at school, however. Kids can get some Finance 101 thrown in with soccer and swimming this summer.

Junior Achievement, a nonprofit that educates students about the economy, runs a nationwide BizTown summer camp where kids work with teachers and volunteers to create a simulated economy. Kids ages 10 to 14 work pretend jobs, such as bank teller, product developer or CEO; pay rent for their space; make bank deposits; and balance a personal checkbook. The camp costs $225 to $269 per week. (Go to www.ja.org/Programs/programs.shtml.)

Junior Achievement has gotten into the classroom as well, with free, year-round programs at various elementary schools across the country. Lessons include in-school visits from local entrepreneurs and field trips to Junior Achievement centers where kids learn financial lessons such as opening a bank account.

Last summer, ING Direct started a summer camp for kids that teaches earning, spending and saving lessons to about 1,500 students in the Wilmington, Del., area. The free, one-week programs are taught by volunteers from the bank. The program is expected to return next month.

The bank also has partnered with the Books for Kids Foundation, which promotes literacy among children, to roll out five preschool financial-education literacy centers in Wilmington, Del., San Francisco and three other cities by 2012. The centers will include libraries with finance-related books geared toward kids ages three to five. (Go to booksforkids.org/libraries.)

Girls will soon be able to earn a merit badge for their financial savviness. In September, the Girl Scouts of the U.S.A. will roll out 13 types of “Personal Finance” badges for girls ages five to 18. To earn one, girls will have to complete five activities based on age. For instance, a five-year-old must recognize different coins while a 13-year-old must create a budget, says Suzanne Harper, the Girl Scouts’ director of program resources.

“Even at the Daisy level [ages 5 and 6], they can start to understand that money doesn’t grow on trees,” Ms. Harper says.

Boy Scouts already can earn a “Personal Management” badge by completing activities such as stock research and shopping comparisons.

Parents also can find a host of new financial books, games and websites catering to younger kids. Ms. Mackey has written activity books in partnership with ING for first- to eighth-graders that include finance word searches and puzzles. (Download the activity books at ING’s site for kids, orangekids.com.)

And don’t let your kid’s penchant for borrowing the smartphone to play games go to waste. There are apps for younger kids that focus on budgeting and saving. For instance, the Kids Money app for the iPhone teaches about saving for long-term purchases, like a new toy. Android smartphone users can try Kids Shopping Calc, which teaches budgeting by shopping in a virtual store with a set amount of money.

By EMILY GLAZER

Article source: Wall Street Journal

 

In the wake of the recent $50B Madoff ponzi-scandal that has left many affluent people absorbing massive investment losses, there has been a lot of attention paid to fraudulent pyramid schemes by the media.  However, this focus has been in exclusion of an astronomically larger pyramid scheme that is hurtling toward a dramatic collapse.

There are two very large forces that are pushing this ‘pyramid scheme’ toward collapse.  The first force to reckon with is the perpetually increasing amount of debt-financed consumption.  The second looming specter is the dramatic liability from government entitlement programs that will be revealed in the coming decades.

Let’s begin by discussing the trend of debt-financed consumption.  In and of itself, debt is not inherently good or bad . . . it is all a matter of what the debt is used to finance.  When money is borrowed at a fixed rate of interest for investment in long-term projects with a higher rate of return, it produces very good results.  When long-term money is borrowed to finance short-term consumption, it requires that future production be sacrificed to repay the obligation.  The intense problems come when the amount owed to finance short-term consumption grows so large that the interest cannot be paid from current income.  (This is true for both individuals and governments)

The second large force in this pyramid scheme is the government entitlement liabilities from programs such as Social Security, Medicare, Medicaid, and subsidizing financial institutions.  The department of the treasury currently estimates the aggregate net entitlement liability at approximately $57 Trillion dollars.  (This amount grows to $61T when state and local government liabilities are added-in, which represents over $500k per household.)

The most likely result of this pyramid scheme is that the treasury will ‘print money’ or de-value the currency by increasing the amount of dollars in circulation to finance the nominal obligations.  (Politicians have a noted tendency to terminally avoid decisions that involve dramatically raising taxes or dramatically cutting benefits)  This will have a net effect of destroying the purchasing power for income and savings, while diminishing the net impact of outstanding debt obligations.

 

When many young people endeavor to purchase their first automobile, they face a wide variety of choices.  One of the choices available is to lease or buy.  If buying, you can purchase the automobile with cash or finance it.  It is highly important to make the right decisions when purchasing a car, since the wrong move can turn that shiny new street cruiser into an automotive prison that locks up your financial resources for years on end.

Most people who are deciding how to purchase a car on paper will reply that it is best to buy with cash.  This is certainly true for people who have enough disposable cash to buy their cars outright, but what about people who need to finance?  The first and most important point of consideration is to make certain that you are not buying more car than you can afford.  One rule that many people support is called the 20/4/10 rule.  Namely that if you are financing a car, put 20% down, finance it for 4 year or less, and make sure the payments do not exceed 10% of your income.  This will ensure that you have positive equity when you drive the car off the lot, which can prove very important if the car is wrecked or stolen.

There are many traps that people can get themselves into with automobiles:

• Lease Trap: Leasing a car sounds great at the beginning, but you rarely get a good deal on the price and there are typically fees and charges that are due when your lease matures.  If you do not have the cash to ‘buy out’ the lease at its expiration, the nice people at the dealership will be happy to ‘bury’ the charges you owe them into a new lease.
• Dealer Financing Trap: Many dealers attract buyers with 100% financing, zero percent interest, easy qualifying, or some other gimmick.  All of this sounds great and induces many people to buy cars at or near the full retail price.  (When you are being financed by the dealer, you have very little power to negotiate a lower price)  However, if something happens to the car, your insurance will reimburse based on market value, which will most likely be less than your car is worth.  Now you have a bill that is due for the remainder between the price you paid and the car’s value when it was wrecked or stolen and that beautiful financing has suddenly evaporated.
• Friends and Relatives Trap: This one almost goes without saying, but great danger can lurk when you purchase an automobile from friends or family.  Before engaging in this sort of transaction, make sure to have the car checked by a competent mechanic or mentally prepare yourself to potentially absorb some unexpected expenses without complaining.

The optimal situation for a person who must finance is to arrange for their financing ahead of time.  This allows them to walk into a dealership knowing exactly how much car they can afford to buy, exactly what the rate will be, and exactly what the payments will end up at for a given price level.  This allows you to negotiate the ‘price’ instead of the ‘payment’ with the sales representative.  If the best deal they can offer isn’t to your liking, you have the power to walk out and go somewhere else because your financing is not captive to one particular dealer.  Even if the rate you get from the bank is higher than the one offered by the dealer, you will have the ability to negotiate down the price and reduce your risk of loss if the car is damaged or stolen.

In the end, it is highly important to avoid turning our car into an automotive prison.  By planning ahead and making prudent decisions, this goal can be easily accomplished while walking down the path of financial success.