Photo credit: nusrin / sxc.hu

College loan debt has topped $1 trillion and that debt load is threatening parents’ ability to retire as well as students’ financial future.

For college graduates, repaying student loans often means postponing buying homes or cars, getting married, and saving for retirement. With few options available, students often turn to their parents to bail them out. A recent Pew study found that “39 percent of all adults ages 18 to 34 say they either live with their parents now or moved back in temporarily in recent years,” including 53 percent of those age 18 to 24.

About half of all parents who make funding their kids’ college education a priority have little left for their own retirement, according to a MassMutual study. The study found that only three in 10 parents believe they are adequately funding their own retirement.

Most conventional methods of paying for college come with hidden drawbacks and many strings attached. Traditional college savings plans, like 529 college savings plans, UGMAs (Uniform Gifts to Minors Act) and UTMAs (Uniform Transfers to Minors Act), are typically invested in the stock market and provide no guarantee on growth rate — or even on the return of the principal amount invested. So what’s the solution?

Not all college savings plans come with these kinds of restrictions or drawbacks. Many families have discovered a safe and time-tested savings method called Bank On Yourself. This strategy uses specially designed dividend-paying whole life policies that grow by a guaranteed and pre-set amount ever year. Riders can be added to the policies that supercharge their growth.

This method allows you to know with absolute certainty how much your plan will be worth on the day college starts, plus it holds other advantages too. Because funds are sitting in the cash value account of a whole life insurance policy, they do not count against you in calculations for financial aid. This means that your chances for scholarships and financial aid are greatly increased. Because of the unique features of the Bank on Yourself concept, you may even be able to start funding a college plan when college is only 2-6 years away and still have enough to help pay college tuition.

My husband and I are using this strategy to help save for our two grandchildren’s college education. We started policies designed to maximize the power of the Bank On Yourself concept for each when Jake was 6 and Halle was 3. The plan we set up for Jake will provide about $90,000 for his college education expenses by the time he graduates, based on the current dividends. And Halle’s plan is predicted to provide about $125,000.

Both plans grow by a guaranteed and predictable amount each year and are from a top-rated life insurance company that has paid dividends every year for more than 100 years. If you start early, relatively small monthly contributions can ensure you’ll have a substantial, guaranteed sum of money when it’s time for college.

• Take a “daycation”: Take a “daycation” to a destination close to home. Hop in the car, drive a few hours and let the family fun begin.
• Grab some cheap deals last minute: Booking tickets in advance might not always give the best deal.  Waiting until the last minute to book a flight could end up saving a bundle. Many airlines offer special fares and discounts during the week for weekend flights. United’s E-fares offer incredibly cheap flights to almost every major city in the United States. Head over to their website every Wednesday to see which deals are available for a last-minute weekend trip.
• Leave the plastic at home: What’s a $2 ice cream cone, really? Those little purchases add up, especially if they are being made on a credit card. Pick one or two days each week and spend only cash.
• Buy local: A great way to spend cash only is by shopping locally for groceries. Surf the web for a local farmers market and buy essential produce items there instead of the grocery store. Everything from fruits and vegetables to homemade nut butters and even some breads and pastries can be found at the farmers markets. If it’s in walking distance, leave the car at home and make it a fun morning activity for the whole family. Plus, farmers markets are typically cash only so no impulse credit card charges can be made!

Grill gourmet at home: Foods taste better when cooked over an open flame. Grilling your vegetables, cooking seafood and baking cakes all taste delicious when cooked outdoors. Why is cooking outside cheaper than using the oven? The oven creates heat; when the house gets hotter, the air conditioning blasts longer resulting in a higher electricity bill. The Internet can be great for finding some creative and delicious recipes so spend one or two days a week cooking outside on the grill.

Article provided by ChicagoHealers.com.

Updated on 19 June 2012 to correct the spelling of Julie Casserly’s name.

Photo credit: Steven DePolo, flickr.com

As children blossom into young men and women, most insist on planning and running their own lives. Parents worry about all the basic essentials for their kids’ independent living, like housing, eating properly, staying warm, being careful at night and more. But most parents forget to teach their youngsters one of the most important lessons of all – financial responsibility. The resulting turmoil can spell disaster for a child’s future.

Consider this: The average young adult amasses $45,000 in debt by the time they turn 29, according to a recent PNC Bank report.

“This generation of 20-somethings was raised during an economically-thriving period,” says financial expert Mark Hansen, author of Success 101 for Teens. “Undisciplined spending habits, student and car loans, and a tough job market have stymied their financial growth. Perhaps the worst culprit is financial ignorance, but we can count this as a lesson for future 20-somethings.”

For young people, organizing finances can be intimidating to the point of prohibitive, he says.

“We need to have a curriculum in schools, from kindergarten through 12th grade, that ensures our kids graduate with financially literacy,” he says. “From balancing a checkbook to understanding what it means to pay – and earn – interest, kids need basic money management skills to survive in the world, and most aren’t getting them.”

Hansen says all teens should know and practice these five tips so they can control their financial destinies:

1. Saving for dreams – the three-envelope method: Use the first envelope for your day-to-day expenses: gas or lunch money. Pause before blowing this money at the movie theater or a fast-food restaurant! Envelope No. 2 is for short-term goals, which might be clothing or a new laptop. The third envelope is for long-term goals such as a car, college or a “future millionaire club” fund.
2. How to create a budget: A budget lets us know what’s possible, and not possible, with money. There are six steps to creating a budget. 1. List all of your expenses. 2. List all income. 3. List monthly expenses. 4. Add up these lists separately. 5. Tweak your budget so you can meet your expenses with money left over for savings. 6. Review your budget every week.
3. How to set and follow through on goals: First, figure out what your current finances are, then determine what they will be in the future — one year out, then two years out, then four years later, etc. How will you get to your one- or two-year goal? You need a plan, and most of the time that means either earning more money, spending less, or a combination of the two. Finally, you have to stick to your plan in order for it to work.
4. Understanding interest rates, such as credit cards: Interest is a fee paid for using someone else’s money. Simple interest is straightforward: 5 percent accrued in your bank account with $100 yields $5 in interest at the end of the year. Compound interest, however, means ever-increasing amounts. This is crucial to understanding debt you may take on from lenders. Know what you are borrowing, and the terms thereof. Just as your money can work for you in a bank account, money borrowed can work against you if it is not paid back in a timely manner.
5. How to write checks and balance a checkbook: These days, it’s easier than ever to review accounts online, which automatically tracks exchanges. HOWEVER, banks do make mistakes, which is why it’s wise to track your accounts independently. Ask. Don’t be embarrassed. Banks are putting a premium on service and want to establish a positive relationship with young customers. If you have a question, speak to someone at the bank. As you take control of your money, you’ll also take control of your life.

The above article was provided by News and Experts of Wesley Chapel, FL.

Photo Credit: 401K, flickr.com

Saving is at the core of a solid financial eduction.  Learning to save is not something that is easy to do in our consumer-oriented culture, however.  Leading by example — and talking about how saving is helping you reach your family’s financial goals — is important.  Creating an environment where kids participate in and ask questions about the saving process is even better.  In honor of Financial Literacy Month, here are some “building blocks” to keep in mind when teaching your kid to S.A.V.E., courtesy TD Bank.

Show them ways to earn money.  Talk to your child about your job and what you do to earn your paycheck.  Discuss what they can do to start earning money on their own.  Consider offering an allowance for household chores.  In your neighborhood, there may be opportunities for them to earn money doing yard work or shoveling.  As they get older, encourage them to research babysitting positions or to look for a part time job after school and on the weekends.

Advise them about earning interest on savings.  Let them know that the bank will actually PAY them to keep their money in a savings account by depositing interest every month.  They may want to keep their money close, but knowing that their balance will get bigger in a savings account, without too much effort from them, may change their mind.  While interest rates may change, it’s always zero percent for their piggy banks!

Verify their understanding of Needs vs. Wants.  This may be the toughest part of the discussion.  They may feel that they need that toy to play with or have to have those new jeans to wear to school.  In order to help them recognize when to spend and when to save, it is vital to teach them the difference between needs and wants.  Consider sitting down with them to make a list of items they want to buy and discuss which category each item would fall under.  This is also a good time to talk to them about helping others and donating some of their money to charity.  Encourage them to designate their funds into separate categories: saving, spending and donating.

Explain the cost of borrowing money.  With the growing number of advertisements focused on the ease of applying for home and auto loans, your child may get the impression that borrowing money is an easy solution when they want something.  Discuss responsible borrowing and make sure they understand the cost of borrowing money.  Use an example from your own borrowing history to show them how much an item cost and how much you actually paid for it.  Talk to them about why you made that decision to borrow and if it was worth it.  These are decisions they will have to make at some point and, as we know, children are likely to copy the financial habits of their parents.

Photo Credit: theritters, flickr.com

As parents, one of the most important lessons for us to teach our children is how to spend and save wisely. By sharing financial lessons with our kids starting at an early age, we can help them understand the importance of being financially responsible and self-sufficient for life.

This is important today when young people experience pressures like never before to buy, consume and run up debt. Kids are bombarded with advertisements for the latest gadgets and pressured to “keep up with the Joneses” by having the latest fashions and toys.

Technology has elevated buying-on-a-whim to an art form. Sitting at their computers or thumbing the keys on their smart phones, kids and teens can download or order a world of music, entertainment, games, books and services that didn’t exist a decade ago.

The need to drive – or be driven – to a retail store sometimes created a sufficient buffer to quell kids’ impulse to spend, or at least presented the prospect of giving mom and dad an opportunity to intervene. But no longer. Direct deposit, debit cards and online banking have each accelerated the pace of money – and accordingly, the speed at which our children must make the right or wrong financial choices.

Kids need to be given a clear, alternative vision to the “spend, spend, spend” mentality that surrounds them. Fortunately there are many things parents can do to teach their kids sound money management. Here are some tips:

• Teach children the difference between needs and wants – A great way to do this is to share your full family financial picture, including what you earn, what you spend, what you borrow, and how you invest and save. Hold regular “family night” discussions with the whole family during which you go over the family budget and review where the money is going. You can even have kids participate by writing checks, reconciling accounts and helping to set and monitor your family budget.
• Teach by example – If you tell your kids one thing, but do another, they will catch on very quickly. Explain how there are things you’d like to buy that you decided to forego and why. And don’t be afraid to openly discuss the mistakes you’ve made and what you’ve learned from them.
• Allowances are a great idea, as long as they are tied into chores – The earlier children learn basic financial principles, such as the exchange of goods and services for money, the better. Nothing builds a child’s self-esteem faster than self-reliance. Children as young as age 4 can benefit.
• Use the “40/30/20/10 Savings Rule” – 40% of kids’ earnings can be used for spending, 30% should be set aside for short-term savings, 20% for long-term savings and 10% for donating. If children sort their money into these categories every week, they will develop responsible lifelong money-management skills at an early age. The amount the child receives for chores should be based on their age as well as what you expect them to use the money for.

Remember also to paint a vibrant picture of your child’s fiscal future. Help kids formulate their own vision of what a life of financial self-reliance and freedom will mean for them. Nothing builds a young person’s self-esteem faster than learning the lessons that can help them become financially independent for life.

Here are five tips to keep your holiday spending in check. Use these tips and tricks to combat the games Madison Avenue – and your mind – play on you:

Holiday Spending Tip #1: Pay for Holiday Gifts With Cash

People paying with cash spend 20 percent less without feeling deprived, according to research by the National Foundation for Credit Counseling. It’s better than using a check or debit card. Even the sight of a credit card logo on most debit cards excites consumers, studies show. So leave those cards at home under lock and key.

Holiday Spending Tip #2: Ask Yourself Why

As yourself why you want to buy something – whether it’s for yourself or as a gift. You may realize that you’re being manipulated into it by advertisements. Just that awareness is often enough to quench the thirst. Another surprising tip: Clench for savings! Making a fist or flexing your biceps has been shown to help people resist at the moment they’re standing in front of a tempting purchase.

Holiday Spending Tip #3: The Gifts People Remember the Longest are Often Free

Think about what you might give that is free or low cost that would bring as much or more long-term pleasure. Can you remember what holiday gifts you received five years ago? If you’re like me, you probably don’t. But I still treasure the memory of a desert hike our family took during one holiday years ago instead of exchanging gifts. Cost: Absolutely free!

Holiday Spending Tip #4:  Remind Yourself of Your Goals

This helps you realize that every time you don’t spend money, you’re closer to reaching your goals. You’ll make spending decisions today that not only build happiness for you now, but also ensure a happy future.

Holiday Spending Tip #5:  Use the “10/10/10″ Savings Formula

Most Americans overspend, take on too much debt and fail to invest wisely for retirement. Using the time-tested 10/10/10 Savings Formula year round puts you in control of your money and finances. Ten percent of your gross income should be set aside for short-term needs, such as a vacation and holiday gift-giving; 10 percent for anticipated mid-term needs and potential emergencies, including a new car, replacement of major appliances, a new roof, and college tuition; and 10 percent for long-term retirement planning. This allows you to pay cash for both routine purchases and inevitable emergencies, and avoid all bank and credit card debt.

Unfortunately, no. Because children have untouched and unblemished credit records, they are highly attractive targets. Child identity theft is profitable, hard to detect, and a nightmare to recover. Thieves steal a child’s identity early on, nurture it until they have a solid credit score, and then abuse and discard it.

How Does It Happen? All an identity thief needs to ruin your child’s bright financial future is her name and Social Security Number. All too often, background checks involve simply matching the name and the Social Security Number provided. This leaves doors wide open for scandalous minds to wreak havoc on your child’s perfect credit. The most unsettling part is that the age of the applicant (in this case, the person posing as your child) becomes official with the credit bureaus upon the first credit application.

The FTC states that 5% of identity theft cases target children, and that is probably an understatement. To make matters more complicated, the identity thief is not always a stranger. In many cases, it’s a relative with bad credit who takes advantage of a child’s pristine credit. In the same way that you can’t protect your children from every bruise and scrape, you can’t entirely remove the risk of identity theft. You can, however, prevent or soften the fall if it does happen. Take these steps first:

1. Stop giving out your child’s personal information. Until you are confident that it is absolutely necessary to receive the services desired, withhold their personal information. More than 80% of organizations that ask for your child’s Social Security Number don’t actually need it to establish services.
2. Order a free credit report for your child at least once a year. All three major credit reporting bureaus (Equifax, Experian and TransUnion) offer one free credit report per year per individual. Order one for your child at the same time you order yours and review them both for any red flags indicating fraudulent activity. If the bureau says that there is no credit report for your child, then you have nothing to worry about.
3. If you find evidence of fraudulent activity, contact the police, the source of the fraud and all three credit bureaus. Filing a police report helps to establish your child’s innocence in an official way. Have the credit bureaus FREEZE your child’s credit for maximum protection.
4. Educate your children on the importance of protecting their personal information. Teach them about the value of their personal information: their name, address, phone numbers, email address, Social Security Number and any passwords and PIN numbers. Reinforce that they own their private information and that it should not be shared with friends, over the internet or with anyone whom they don’t know or trust.

In the case of child identity theft, an ounce of prevention is worth a lifetime of financial security. Don’t let the center of your universe become just another statistic.

Fiat Currency. Global Reserve Currency. Gold Standard.

You might have heard terms like this, but what exactly do they mean? How is what’s happening in Greece related to what’s happening here and why should I care? We’re going to use some ink in the next several articles laying out the basics of the ongoing financial crisis – no, it never actually went away – and what it means to us.

But first, permit me to share a true story.

My father once bought a third car since my older sister was now driving. Because he had what I now recognize as a blossoming mid-life crisis, he pulled into the driveway in a sporty, low-slung, forest-green convertible thinking that he’d bagged a two-fer. This car was a Fiat Spyder and it looked fabulous, the best that he could do with the money available.

We soon learned that the joke that Fiat was really an acronym for “Fix It Again, Tony” and it was a car that demanded unrelenting vigilance and discipline, more than any car that we’d ever owned. It was a mechanically unforgiving vehicle and if it wasn’t assiduously maintained it would wind up at the shop. There were times it went in despite his best efforts. Because the engine didn’t like the Pennsylvania winters, he kept it in the garage and covered the engine with a canvas tarp to protect it. So the morning routine was to enter the garage, lift the lid and remove the tarp, recite a Hail Mary and turn the key.

This car remained in the family until one late winter morning when Mom needed to drive it. She was running late so she jumped in the Fiat for a quick run to the bank. She sat waiting in the drive-thru lane when she noticed the window teller banging on the glass and yelling at her while pointing furiously at the hood. Mom glanced ahead to see that smoke was billowing out from under the hood where the tarp – which hadn’t been removed – had caught fire. After the tarp went up, the engine soon followed and within minutes, there was a toasted Fiat blocking the bank’s window lane.

Fiat: A Currency As Well As a Car

Our dollar, as are all of the world’s currencies, is called a fiat currency. It isn’t an acronym, but actually the latin term for “faith.” Each currency is considered a fiat currency because it is backed only by the globe’s faith and confidence in the ability and will of that particular country to support it in terms of competitive ability, resources and capacity to service its debt. That faith is demonstrated in the daily global transactions involving the buying and selling of the various currencies. All manner of entities engage in currency transactions – companies, banks, hedge funds, individuals and central banks – and it’s the point at which what buyers are willing to pay versus what sellers are willing to accept that the valuation occurs. And with globally networked computers, valuation occurs quickly and widely. Because the Norwegian Krone is used by a country with solid governmental finances and an oil exporting economy, the world demonstrates its respect by valuing their currency higher than Argentina’s, whose government burned international investors by defaulting on its debt. It takes far more pesos to buy one krone now that it did ten years ago.

That’s the key to my father’s Fiat and today’s currencies. Fiat currency is based to a significant degree upon the perception and faith of others. Maintaining that faith and supporting that perception requires a large degree of self-discipline and vigilance on the part of the owner to assure that it continues to be deemed worthwhile by others. If a country gets a poor valuation, like the Italian car, then the global economies vote against it in valuation.

How Did We Get To a Fiat Currency?

For many years, the American currency – like all of its peers – was backed by gold and silver and its control was mandated in the Constitution. What that literally meant, after paper notes were issued during the Civil War, was that the holder of a dollar bill was able to go into any bank and trade that paper dollar for a fixed amount of gold or silver. People learned to accept the dollars because the amount of metal was fixed and also because it was simply easier to carry paper bills than deal in gold. Because the dollar was thus backed by the metal for which it could be exchanged, it had a steady store of value that buoyed the people’s confidence in it as a currency.

This gold standard was a staunch enforcer of discipline upon the international markets. If America purchased more from England in 1866 than vice-versa, England could take all of the dollar bills it had received and return them to the US Treasury for an equivalent amount of gold from the government’s vaults. Consequently, the US Government then had less gold than could support the number of its own dollars in circulation and ran the risk of default should enough citizens opt to trade paper for metal. Dollars would then have to drop out of circulation and the result was less money for the citizenry. Countries had to live within their means or find new ways to grow wealth.

We’re not finished with the gold standard yet, but we need to cover something else first that will make the final days of the gold standard make sense.

What’s a Global Reserve Currency?

People generally believe that simpler is better and that view even runs to the handling of international financial transactions. To keep from having to constantly recalculate the value of one currency to another in international transactions, banks and merchants long ago opted to assure that international transactions were usually handled in one currency only. This is referred to as the Global Reserve Currency (GRC) and it’s a role presently held by our dollar because it serves as the medium of exchange for almost all international business transactions.

The status of GRC is bestowed by the world upon that currency which, in its view, is the steadiest and best able to weather the various storms – political, economic, natural – that occur. The dollar became the GRC at the end of the Second World War after a meeting of allied financial leaders at Bretton Woods, which lent its name to the ensuing agreement that formalized it. At that time, the US was literally the last country standing after a second global world war which devastated dozens of nations and exhausted the country with the GRC, Great Britain. It was agreed that going forward, all international transactions would be handled in dollars.

Remember something. The dollar was now the GRC but it was still backed by gold. The dollar’s status as the “anointed one” was only peripherally related to its gold backing and it hadn’t yet become a fiat currency. At that time, the US had roughly 20,000 tons of gold in its vaults at Fort Knox and elsewhere.

This gold-backed GRC system lasted for almost thirty years. And in that time, the country began to persistently run trade and government deficits so that we were sending more dollars overseas than we were bringing in from elsewhere. Our standard of living rose dramatically and we dreamed big dreams and tackled big projects but that meant that periodically, our gold flowed out of Fort Knox. Financing the Vietnam War, the Great Society and the Space Program took huge sums, and those dollars were returned by foreigners for gold.

Gold to Fiat

Around 1969, the US Government started acknowledging that the US was going to eventually run out of gold if things weren’t brought under control. There was yet another meeting of international finance ministers and they hashed out what’s now referred to as Bretton Woods II. In this agreement, the dollar – still the biggest kid on the block – continued to be the GRC but it was agreed that all of the world’s currencies would “float” in valuation against one another and gold would no longer be used to back the store of value as it had. Those valuations would be set by tracking transactions within the global markets and updated by computer, which now made this possible. The dollar’s value now floated against other currencies, which was good because we’d lost over half of our gold reserves in the preceding thirty-odd years. If the US handled our economy and budget well, the dollar’s value rose against other currencies. The flip side was that if our country didn’t pay attention, exercise discipline and maintain our fiat, it would eventually become toast as others punished it in the global marketplace.

So What Do You Need To Remember Going Forward?

• The dollar is a fiat currency with a value based solely upon the willingness of countries worldwide to accept it. That means that their perceptions, beliefs and biases play a major role in how well it holds value – especially to pay for things like oil.
• The dollar is the Global Reserve Currency, which means that almost all of the world’s business transactions occur in the dollar. It also means the dollar’s value is determined not just by folks in this country, but again, by others throughout the world.
• Financial systems can change and if there’s a pressing enough reason, change quickly. We went through two massive changes – Bretton Woods I and II – within a thirty year period. It might seem like a long time personally, but in history’s timeframe, it’s the blink of an eye.
• Covering a Fiat with a tarp is ultimately bad for the Fiat.

Thanks to Jesse at Jesses Crossroads Cafe for reviewing this article. Any errors are mine only.

Next Article from Don Harrold: Markets and the Law – The Gov, the Fed and the Goldman

Image credit: Paul Sapiano