This summer, droves of school-age children will attend summer camp, where they will paddle canoes, play tennis and make crafts from paste and yarn. Others, will go to finance camp, where they will take excursions to a local bank or delve into budgeting and investing simulations. Rather than singing around the campfire, they will chant personal-finance mantras like these sung at Camp Millionaire in Santa Barbara, Calif.: “Financial freedom is your choice” and “Assets feed you, liabilities eat you.”

Ed Koren

In the past, business and finance camps attracted high-achieving high-school students. Now, with the country’s uncertain economy, financial education is expanding to an unlikely audience — younger kids, even grade-school students. They are also reaching out to those from diverse economic backgrounds. And the lessons are surprisingly sophisticated, teaching campers how to rebalance portfolios, invest in real estate and use credit cards without getting dinged on fees.

At Camp Millionaire, campers in five days create a minieconomy based around “moola” — mock currency that features a cow’s portrait — which kids use to spend, invest in stocks and compete with each other. They also use the fake currency to pay their “bills,” running around and depositing moola in large envelopes with labels like “phone bill” and “credit card bill.” Parents spend the real moola to send their kids to the weeklong session, which ranges from $279 to $300. Scholarships are available, based on financial need.

“Adults underestimate kids’ abilities. Investing — they’ll get it and be interested in it,” says counselor Pamela Capalad.

Andrew Adams, of Santa Barbara, attended the camp twice, once when he was 10 years old and again two years later. “He was coming home with words like ‘adversely affect your credit score,’ ” says his mother, Denice Adams.

Andrew pointed out to his mother that her credit-card billing cycle had changed, and that she wasn’t keeping up with payments. Her delays were racking up late fees, jacking up her interest rate and hurting her credit score. After considering her non-discretionary household expenses (his words), Andrew also pronounced that the mortgage on their Santa Barbara home was too high for her income. Now 15 years old, Andrew has launched his own small travel business and is a financial-news junkie.

Gauging Risk

At YoungBiz’s Smart Start to Money Camp in Sarasota, Fla., campers ages 13 to 18 are asked to toss a ball into a bucket, earning more points the farther away they stand. It aims to teach kids about risk tolerance and lead them into a discussion about stocks and asset allocation. How far away from the bucket they’re willing to stand might tell them something about their investing style.

Bonding Over Banking

Girls only? Read about finance camps for girls, and join a discussion on WSJ.com’s Front Lines.

Campers pay $100 to $300 for the three-day session, in which they form teams and compete to create the best portfolio. In 2001, during one of the first camps, one camper pleaded with his teammates to buy stock in a then-risky company, eBay. His peers lobbied for safer bets, like utility companies. After a fiery debate, the team passed on eBay but agreed on an alternative stock allocation. They won the competition because counselors were so impressed with their cooperation.

Camp Challenge, a joint effort between the North Carolina Bankers Association and 4-H, mixes financial education in the morning with traditional activities, such as horseback riding or swimming, in the afternoon. For $350, kids 10 to 14 years old learn the basics of everyday finance using the FDIC’s Money Smart curriculum.

Robin Diamond

Federal Reserve Chairman Ben Bernanke with campers from Camp Challenge.

Camp Challenge is also part of the America’s Promise Alliance, a business and nonprofit cooperative that works to reach students at risk of drug abuse or dropping out, for example. The weeklong overnight camp in Westfield, N.C., has drawn the attention of Federal Reserve Chairman Ben Bernanke and former Secretary of State Colin Powell, who have been known to mingle with campers when they’re in the area.

In Denver, the Young Americans Center for Financial Education takes a macroeconomic approach to financial education.

Creating a Ghost Town

In weeklong sessions that cost $185, fourth- and fifth-graders take part in large-scale simulations of the economy of a small town. Campers apply for jobs. They create business plans for 17 different businesses, patronize others along Main Street and even buy health insurance. (It costs two AmeriDollars.) One year, the counselors had a camp of savers, and AmeriTowne turned into a ghost town when the kids refused to spend any money. The incident sparked a fruitful discussion about free enterprise. Counselors asked campers to imagine what would happen to AmeriTowne’s Main Street if no one spent any money in the long term. The grim consequences of an inactive economy soon became apparent, especially when they realized that they, too, were business owners.

Global Economics

The fifth- and sixth-graders take the minitown approach and bump it up a notch to the International Towne. It is like a model United Nations with a robust focus on trade, currencies and deficits. They’re thrown questions about environmental protection and sustainability. When counselors asked campers to write down how they would cope with limited water resources on the planet, they ran out of paper.

“They really run the world at the end of the week,” former banker C.J. Juleff, vice president of programming for the camp, said.

By MARY PILON

Article source: Wall Street Journal

 

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.

 

Throughout the lexicon of financial advice in the marketplace, there are many different views regarding the role of debt in our lives.  The traditional view is that debt causes us to make interest payments that deplete our wealth and erode our ability to build wealth.  In the case of the current mortgage crisis, many lending institutions and government agencies encouraged excessive lending to borrowers that were in very high risk of default.  This has even prompted some financial authors to proclaim that all debt is bad, regardless of what it is used to finance, and regardless of how it is structured.

It is certainly true that using debt to finance consumption purchases is fraught with danger.  (This is what people typically refer to as ‘consumer’ debt)  The problem you run into is that when you finance a consumption purchase with debt, you end up paying for something that either doesn’t exist anymore such as food & drinks or something that is currently worth less than what you paid for it.  (The overwhelming majority of consumer purchases decline in value after they are purchased)  Automobiles also fall into this category, but are frequently financed because most people do not posses enough cash to purchase them outright.  This is what generally falls into the proverbial ‘bad debt’ category.

Conversely, you can also use debt to purchase something that increases in value such as your home.  This type of transaction provides a double-benefit because the value of the dollars you use to repay your loan are eroded by inflation while the value of your home increases.  The difficulty in this strategy is that you can’t spend the increase in your home equity until you sell the house and realize the gains.  One way to get around this crunch is to use debt for purchasing rental/income investments where the income collected is used to pay the interest on the loan and you benefit from the increase in the asset value.  This is what generally falls into the ‘good debt’ category.

Finally, there is the notion that people should strive to have no debt at all.  I would certainly agree that ‘bad’ debt should be avoided, but am concerned that the desire to avoid debt could make many people blind to tremendous opportunities for gain.  The problems that people get into with debt are not from the debt itself . . . the problems stem from what the debt is used to finance.