Teaching Kids About Money

By Dan Danford, Family Investment Center
From Table Talk, August 12, 1999

Raising children is a common theme many of us face. As parents, we walk a fine line between giving kids what they want and teaching them important lessons about life.

Every family is different and so is every child. So, things that work with my girls may not work for you. But, I get many questions about money and kids, so these are some thoughts on the subject. Experience has been my main financial teacher, so the ideas aren't sacred and they continue to evolve. (I confess that my school counselor wife influences me. In fact, if you like an idea, if probably came from her. If not, lay the blame at my feet.)

First, kids won't learn good things about money unless we teach them. Default is unacceptable. What financial lessons come from television or other children in our schools or neighborhood? Are these lessons we want our children to learn? We must take positive action to override bad examples seen almost everywhere.

How should we teach the right lessons? Start by setting a good example. Forget what the spoiled athletes say; we are role models. Our children watch carefully and imitate our behavior. If we show prudence and discipline about spending, so will they. If we regularly save and wisely invest, so will they. We are the money gods in their lives, and they look to us as their mentors.

Let them learn through mistakes. A regular allowance is a great tool for this. Let them spend as they want, but patiently coach them in reaching good decisions. When they make bad decisions (and they will), let them suffer the consequences. Don't bail them out if they overspend. Overall, allowance dollars are tiny, but life lessons taught here can be huge.

Teach them to work. Children will not grow into productive adults unless they learn to work. Period. There's a good chance they won't want to work and a strong temptation to let them "enjoy life" as a teen. But, one critically important life lesson is to balance work and play. They won't learn this lesson without working and adulthood may be too late.

Life's focus shouldn't be finance and placing too much priority on money can be bad, too. So, a most important gift for our children is the lesson of perspective: in life, people are most important. Money is simply a tool to help the people we love. Nothing more. Nothing less. If we teach them this, our children will prosper.

Family Wealth Advice: Financial Character Traits III

By Dr. Jason White
Director of Investments
Family Investment Center

Dr. Jason White is Director of Investments at Family Investment Center and an Economics, Ph.D. at Northwest Missouri State University

This is the final article of three on the application of Northwest Missouri’s Culture of Character traits to our personal financial lives. We last left off with a discussion of the trait of Cooperation.

One of the toughest character traits from my point of view is Perseverance, which is demonstrating determination and commitment to complete a task. This is undoubtedly one of the hardest on the list, but also the most rewarding. Financial Perseverance requires current sacrifice, by saving as opposed to spending, with a reward that may not be revealed until many decades into the future. Perseverance requires faith in your financial plan, trust in your advisor’s method, and the constitution not to waiver, even in the worst of times. Ultimately, a savings program will yield rewards, even when market waters are choppy and difficult to navigate. Steady as she goes!

Perseverance goes hand-in-hand with our next trait: Patience. Legendary investors like Benjamin Graham, Charlie Munger, John Bogle and Warren Buffett all have preached the importance of due diligence, followed by steadfast Patience in your investment choices. But, please do not confuse Patience with stubbornness or indifference. While the former is an example of laudable self-discipline, the latter reflects unwillingness to change for any reason, even compelling and/or rational ones. Patience is defined as the ability to remain calm and to wait for what you want. Like perseverance, patience is also a hallmark of the long-term investor.
Those who exude Confidence have visible freedom from doubt and a strong belief in both self, and in a power greater than themselves. Be Confident that your sector-diversified portfolio of mutual funds with strong management and somewhat boring, steady and reliable annual returns will always beat the high-flyers and quick buck artists that may make a big short-run splash, but invariably are a long-run bust with equal disruption. Confidence also means believing in the skills, abilities and advice of your financial advisor and any other professional service experts you hire. Assemble a group of people you would be willing to trust to oversee your mother’s finances without your oversight, and I guarantee financial Confidence will not be a worry for you.
Last but not least on our list of financial character traits is integrity. This means always doing the right thing even when no one else is watching. To be honest, financial Integrity may be a bigger problem for those of us in my industry, than for our customers. It seems that most every day I pick up The Wall Street Journal some broker, insurance, annuity salesman, executive or analyst has made news for engaging in illegal, or at least questionable, behavior. To the best of your ability, stay away from these folks. Many inhabit Wall Street, but they are sometimes discovered on Main Street as well. They always have a story to explain the “misunderstanding” that took place when a client fires (or worse, sues) the malfeasant party. My strong belief in the majority of cases of accused wrong-doing is that where there is smoke, there’s fire.

Well, that completes the list of Northwest Missouri Culture of Character Traits as I see them applied to personal finance. I hope you enjoyed reading them as much as I enjoyed writing them.

Financial Character Traits: Part 2

By Dr. Jason White
Director of Investments
Family Investment Center

Dr. Jason White is Director of Investments at Family Investment Center and an Economics, Ph.D. at Northwest Missouri State University.

In a previous column, I attempted to apply what many of us believe to be good character traits, but in the context of our personal financial lives. I am using a list from several years ago that became known as the Northwest Missouri Culture of Character Traits. I have previously written about responsibility, respect, self-control and citizenship.

Compassion shows caring for others with kindness. Do we financially support community and charity? Time is money as they say, so that counts too. When the Ministry Center is accepting donations, do we give some of the good stuff, or do we contribute the lima beans more often than not? If religion is something we value, do we tithe (contributing 10% of income earned) to our Church, as scripture indicates we should? Or perhaps, are we working toward tithing – which is wonderful! Many of us feel financially compassionate toward charity and religion, but are we really doing our fair share?

My family’s personal monetary commitment to tithe and charity is better than it used to be, but still below the bible’s guidance. Giver and receiver benefit most when gifts are given happily, even eagerly, for all to truly enjoy fellowship and caring that stems from the act of giving.

Tolerance demonstrates an acceptance of differences and the uniqueness of others, while celebrating the common ground we share. Every one of us has different financial goals, savings proclivities, spending habits and risk versus reward tolerances. I may be a big spender, while my neighbor is much more frugal. Does that financial difference make one of us a better person than the other? Clearly not. Financial tolerance recognizes that not all of us value and treat wealth and money in the same way, and that is okay.

Honesty is being truthful in what we say and do. Are we always honest with our family, friends, associates and clients? Perhaps more importantly, are we completely honest with ourselves? Do we sometimes sugar-coat the risks of an investment opportunity by overstate potential rewards, and ignoring the real risk of loss? This Great Recession has been difficult for those who may not have clearly understood their own reactions to loss and volatility.

Cooperation champions working together toward a common goal. Families do this all the time. They may institute a program of thrift, pinching pennies to save for various goals: a house; a new car; a college education; a retirement; or maybe a dream vacation. Having cooperative advisors on a personal and professional level can make life so much easier and more rewarding.

That’s eight financial character traits down with four more to go in my next column.

See you soon!

Financial Character Traits: Part 1

By Dr. Jason White
Director of Investments
Family Investment Center

This is the first of a three-part series of columns dedicated to fostering certain financial character traits. We have all seen these behaviors in others as well as ourselves.

Responsibility is defined as “taking ownership of what you say and do.” Likely, we all probably need to save more than we do, and we certainly are masters at preaching to our children regarding the merits of saving for future goals and for the challenges in life. We talk about Responsible practices like: saving for a rainy day; saving for retirement; having a cushion of savings in the event of job loss or disability; saving for the college expenses of our children or our children’s children, etc. Are we practicing such financial discipline in our own lives by taking Responsibility for our personal or family savings program?

Respect means “treating others with courtesy and honor.” Do we look down on others who may not have the asset total we do? Does our bankroll give us a right to be snooty, rude or elitist? Certainly not! We were born into this world naked, and we shall exit it the same way when our time comes. While we are here, we should strive to treat all persons with Respect, regardless of financial position or other material difference.

Self-control refers to “having control over one’s actions, words and emotions.” I see this as a close cousin of Respect, but it could also refer to our demeanor regarding our investments. Are we riding high when the stock market does well and in the doldrums when the Dow is not as rosy? Do we trade frivolously or attempt to time the market through such futile activities as day-trading and the like? Do we chase the hot stock tip or try to find a get-rich-quick scheme? Financial self-control means having a long-range financial plan and sticking to it, regardless of the distractions and temptations that may come along.

Citizenship is “being loyal to your school, community and country.” Are we good Citizens as investors? Do we always vote our stock proxies, or do we cast them into the wastebasket, leaving the task of board oversight to other shareholders? Evidence indicates most of us choose the latter. A good corporate (shareholder) Citizen takes an active interest in the investment position(s) s/he holds and is educated about what those investments are designed to do – and what they are not designed to do as well.

A primer on flood insurance

By Robyn Davis Sekula

Your greatest asset is likely to be your home. Protecting it is part of financial responsibility.

Many lenders are now requiring homeowners to get flood insurance - and you need to know about it if your lender does require it. You should consider it even if your lender doesn't. Regular homeowners insurance usually does not cover flooding, and even a few inches of water can cause a lot of damage.

Here's a great article from Investopedia about flood insurance. It's a solid overview, and recommended reading for all homeowners.

http://www.investopedia.com/articles/insurance/10/understanding-lender-required-flood-insurance.asp

It's time to talk to your banker

By Dan Danford
Family Investment Center

So when was the last time you refinanced your home?

If you plan to stay in your home a few more years, and if it's been a while since you refinanced, it's time to talk to your banker. Interest rates are dropping on traditional mortgages and you may find that you can save a significant amount of money or lower your monthly payment by refinancing.

Talk to more than one financial institution and see what they have to offer. Don't get stuck on one bank, either, because many sell their mortgages anyway and it won't make much difference who you originate the loan with.

Here's the latest from Bloomberg News on the interest rate drop.

http://www.bloomberg.com/apps/news?pid=20601214&sid=arOOSO1.2Wu4

Dad's Divorce: How to find a financial planner

In this week's edition of Money Made Easy on Dad's Divorce.com, host Dan Danford answers this question from a viewer: I'm considering hiring a financial planner to help me with my finances and meet my life-long financial goals, but I have no idea where to start or who to choose. What are the right questions I need to ask when choosing a financial planner?

Danford, MBA, CRSP of Family Investment Center, lets you know what to look for when searching for a financial planner and how you should know if a planner is a good fit for you.

Financial evangelism: It's what we do

By Dan Danford, CRSP
Principal and CEO, Family Investment Center

Our Facebook Fan page describes what we do as “Family Finance Evangelism.” I guess that makes me a family finance evangelist!

What do we mean by that? Here’s what Wikipedia says about evangelism: “Evangelism refers to the practice of relaying information about a particular set of beliefs to others who do not hold those beliefs.”

Our particular set of beliefs:

• Financial success is a personal choice and responsibility.
• Financial success requires family savings.
• Financial success requires wise investment choices.
• Financial success is enhanced by a family stewardship team.

Many people share some of those beliefs. I’ve been working in this field since 1983 and my experience says that some is not good enough. Genuine financial success flows to people who share all of these beliefs. A few words about each one:

Personal choice and responsibility: We all know people who enjoy privilege of talent or birth. Most of us don’t. The amazing thing is that it doesn’t really matter much without a sense of personal responsibility. Alternately, we all know people of modest means who achieve remarkable success. Success is mostly a matter of choice.

Family savings: Distant family goals require money set aside today. If every dollar flowing into a home flows right back out again, it’s not there for education, retirement, or other crucial goals. Success requires regular and systematic savings.

Wise investment choices: There was a time when this wasn’t so important. Today, the time distance between saving to spending can last a half-century or more. Retirement dollars invested at 30 have to buy medicine when we are 90. Invest wisely to serve long-term family purposes.

Family stewardship team: Do-It-Yourself isn’t very helpful when there are 25,000 mutual funds, 6,000 stocks on the New York Stock Exchange, and the Tax Code runs 1,000+ pages. Is it really possible to know enough from CNBC or an occasional glance at the Wall Street Journal? Recruit a qualified team to help you succeed. (A pastor or elder might be helpful, too.)

Our role as investment advisors is to help people achieve pesonal and family objectives. We don’t know all the answers and we can’t predict the future. But we can help people discern the path most likely to help them achieve family goals. There is both art and science in what we do, but it’s all we do, for hundreds of families and clients.

The Merriam-Webster dictionary uses the phrase “militant or crusading zeal” in their definition of evangelism. That’s my point today. There are four key beliefs that are most likely to help people achieve family goals. I’m a Family Finance Evangelist. My zeal is to help people succeed. It takes four principle beliefs.

Financial planning: what's involved?

Our friends at Dad's Divorce.com publish a podcast by Dan Danford every week on their web site that addresses financial issues, particularly geared towards men going through the divorce process. The advice, though, often applies outside of that group. This week, Dan discusses what happens in the financial planning process. What is good financial planning and how does it work? If you've ever been curious, this is the podcast that will help you learn more.

Dad's Divorce: How to handle an inheritance

Every now and then, something great happens: you get unexpected money. It's a terrific position to be in. On Dad's Divorce.com, Dan Danford provided an outline of how to spend the extra money. Dan provides a weekly podcast for the site.

Change habits for better 2010

Periodically, we get inquiries from journalists writing about personal finance. Often, they're seeking advice for readers and viewers. Recently, we got an inquiry from a reporter wanting to know what new advice is out there for their readers. Dan Danford had a great response, so I'm posting it here. --- Robyn Davis Sekula

By Dan Danford

There's almost nothing new under the financial sun. But that doesn't mean that we can't learn something new every day. For 2010, some of us need to incorporate some new behaviors based on these past few years. One lesson might be to turn buying inside out. In earlier years, we used a credit card to buy things today and pay for them with future earnings. A newer and better approach is to put money aside today so we can buy things later. It's inside out.



Another good idea is to treat your home mortgage like a very good friend. Some folks hate debt and focus a lot of attention on "paying it off soon." Maybe a better way is to maintain it like a vintage car, and lavish attention on maintenance and repair. Keep current with the payments, refinance when desirable, and only pay it off when no better option for investing exists. There is almost always a better option for long-term money.

My take is that many people think they are doing the right things, but they are not! We learn financial things from our parents, grandparents, and friends, and much of it is twisted by myth and self-interest. Tough times create an opportunity to learn some better things for ourselves.

On risk: it's there, even if you can't see it

Editor's note: We occasionally respond to media inquiries and I thought this answer from Dan to a reporter was particularly astute. I'm posting it so you can read his thoughts on this - he makes great points. - Robyn Davis Sekula

By Dan Danford

Of all the bits of financial information available to consumers, risk is the least understood. Study after study shows that people routinely misjudge risk, and personal finance is a bad place to mess up. It's hard to see the risk in a rising stock price - until the shares plummet. Similarly, a good job seems stable right up to and until the pink slip arrives. Housing prices in a new neighborhood have never fallen; then they do. I once worked for a bank that had several decades of non-stop rising dividends. Safest bank ever! It failed 18 months after I started working there (not my fault, either!). The point is that most folks are terrible at understanding the risks in their financial lives.

There are several ways to hedge those risks. First, diversify everything. Have two family jobs instead of one. Go to school to keep your skills current or to learn a second trade. Keep emergency reserves in a savings account. Buy ten stocks instead of one, or, better yet, a good mutual fund. Financial advisors work in these realms every day, and they work with dozens of other families and situations. If nothing else, they have a better grasp on family risk than the typical consumer. Let a professional guide you to solid solutions and profitable actions.

You can save a lot of premium money by avoiding health insurance. And you might say that - based on your personal history - there's not a lot of risk in that strategy. But that's not really accurate. You may not see the risk, but it's there all the same. That's true of many family financial issues. Risk may not be obvious, but it's there anyway. Do you want to know now - or later?

Don McNay: Just Say "No" to Adult Children Wanting Money

Don McNay writes a regular column for The Huffington Post. His latest shares a key message: don't give large sums of money to adult children. It keeps them from growing up and really doesn't do them, or you, any favors.

Here's his insightful column on the topic.

Don McNay: Just Say "No" to Adult Children Wanting Money

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Overdraft fees only a problem for a few

By Dan Danford

Overdraft protection is a convenience that keeps us from being embarrassed when we make a mistake in our checkbook. Most of us wouldn't mind paying a fee when that happens occasionally. There are a group of customers who are chronic overdrafters (new word?), and they spend a fortune on overdraft fees. For them, opting out could be an answer, but I doubt they will do it. That would mean they'd have to stop spending when their account is empty, and most will reject that sudden and violent stop! Of course, what really happens with these chronic overdrafters is that the charges just keep adding to their balance until it become an uncollectible debt.

For most of us, the overdraft charges aren't a burden because we don't incur them. This is another case of government intervention because of an irresponsible few people. Everyone should consider the right approach for their family, but it's a non-event for most of us.

Here's a column from The Houston Chronicle that explains it all, and what some options are for those who are thinking of opting out of overdraft protection.

http://www.chron.com/disp/story.mpl/business/buggs/6651156.html

Stop Acting Rich: The Paradox Of This Book

By Dan Danford

Review of Stop Acting Rich: And Start Living Like A Real Millionaire.

I’m a big fan of Tom Stanley’s research and books. I first encountered Stanley at a trust conference many years ago, and I’ve read and recommended his books to dozens of clients and prospects. His insights are helpful and entertaining.

His newest book, Stop Acting Rich: And Start Living Like A Real Millionaire, reveals the differences between what we say and what we do. He chronicles the spending patterns of genuinely rich people, and the lifestyles they enjoy. It’s interesting, because there are two groups of people with serious money; the glittering rich (think Donald Trump or Bill Gates) and the millionaires next door. And, as you’d guess, they consume differently.

Spending by the glittering rich, well, glitters. These are the few folks with so much money that spending really doesn’t matter. They own multiple cars, multiple timepieces, and they tend to entertain lavishly. We all know who they are and they set a remarkable standard for living.

Other rich people are remarkable for differing reasons. As Stanley has recorded previously, they stand out for their modesty and good sense. These millionaires drive Toyotas, wear Seiko watches, and surround themselves with value-oriented merchandise. We know who these neighbors are, too, but we probably don’t realize how financially successful they truly are. They set a different kind of standard.

Here’s the paradox of this book. Almost everyone else (and that’s a huge chunk of our society) dwells in yet another culture. This is the culture of false wealth. Where looking rich is more important than being rich. It’s the world of luxury goods sold to high-income buyers. But, sadly, that spending pattern yields no genuine wealth. The simple act of buying those goods, by itself, is financially counterproductive.

These are residents of mini-mansion neighborhoods. And owners of luxury automobiles and Rolex watches. They send their children to private schools and belong to expensive country clubs. They buy Brooks Brothers suits and shop at exclusive department stores. They are glittering rich wannabes, and they spend most of their income on a prestige lifestyle. There’s nothing left for saving.

The depressing truth is this book won’t change much. Most of us would rather look rich than be rich. We like those luxury goods and that luxury lifestyle, even if we can’t afford them. We can see how sensible living might bring stability and success. We know Tom’s right, but we don’t want to live in sensible neighborhoods or drive sensible cars or wear sensible clothes.

That’s the paradox of Stop Acting Rich. We don’t want to.

Want to buy it? Purchase it from your local bookstore or from Amazon by clicking here.

Americans don't spend wisely

On Mondays (or sometimes on Tuesdays!) we post a question from a reader and an answer from Dan Danford. If you have a question for Dan, please post it in the comments section.

QUESTION: What would you say is the most common financial mistake among most Americans?

ANSWER FROM DAN DANFORD: This is really easy for me. Americans make bad decisions about spending. There's an old saying about people "knowing the cost of everything and the value of nothing." We buy stuff with little enduring value and wonder why we're always out of money. We could take examples at every salary level and find really bad ways that people spend money. They buy bad houses, cars, clothes, and electronics. And they lament that they "just can't get ahead."

A simple test could fix this. If every purchase decision was preceded by resale analysis, most bad decisions would be avoided. Before you buy something new, go to eBay and review what that same product is selling for used. Look up recently completed sales and you'll see the instant loss on that new item you covet. If it's a car, you'll see how much it depreciates. The same for televisions, telephones, and telescopes! You may choose to make that same purchase anyway, but at least you'll know what the decision is costing you. And what the true "value" of that product is ...

This isn't rocket science. If you have a fixed amount of money - all of us do - and you have to buy things with it, why not buy the best things? This really accomplishes two goals. First, you'll own things that retain value, and second, you can invest the money you save. Another thing, too, actually. You'll be light years ahead of your friends and neighbors who keep right on making bad decisions.

Four dumb financial mistakes

There's some great content out there on personal finances, and this is one of the latest from Yahoo!, which does a pretty decent job of covering business. This article reviews the mistakes that people make during/before a recession. Seems obvious in retrospect, doesn't it? But it's not too late to correct your mistakes. You can change. Read on.

http://finance.yahoo.com/banking-budgeting/article/107748/4-dumb-financial-moves-in-the-recession.html?mod=bb-budgeting

Why do people blow big money?

Don McNay writes a regular column for The Huffington Post, and this week, he addressed misspending by those who get large sums of cash in a short amount of time. It's an interesting take on something that confounds a lot of us. You can read it here:

http://www.huffingtonpost.com/don-mcnay/big-money-why-people-blow_b_278892.html

Go beyond sticker price to find bargain cars

Finding a car that will go the distance is important. In fact, one of the most wasteful things many people do is trade in perfectly good cars for a newer model, for no solid reason other than simply wanting a newer car.

Pay attention to many factors when you purchase. Do look at the sticker price, but also look at the car's long-term prospects. Review gas mileage, too, as fuel prices are climbing. Get away from status brands and avoid expensive trim packages. Pay attention to everything you're charged - and be sure to check multiple places for the best financing deal. Don't just accept dealer financing.

For more, here's an article that Yahoo! Finance posted as part of their Financially Fit series. Surprisingly, the Hyundai Accent tops the list as cheapest per mile to drive.

http://bit.ly/EtKZu

Tips for saving money

By Dan Danford

We all know that we should save money, and most of us don't save enough. We should all have an emergency fund, and we should also have savings outside of that. For the past week or so on Twitter, we've been giving out tips on two things relating to that: first, what qualifies as an emergency, and second, tips for savings. We've compiled the tips below.

- Emergency funds are for true emergencies. What’s that? Something that threatens life, health or safety.

- What’s an emergency? You need to escape path of deadly hurricane and pay for hotel rooms.

- What’s an emergency? Your car dies, and you need to repair it so you can get to work.

- What’s an emergency? You break your leg, and need to pay hospital bills. (Although they will often negotiate payment plans.)

- What’s not an emergency? You need a new iPod or TV, couch, chair, carpet.

- Savings works best when it is earmarked for a certain purposes and a goal for a specific amount is set.

- Savings works best when you save a little at a time. Don’t let the size of the goal daunt you. Start small.

- Savings works best when it comes straight out of your paycheck. Have some direct deposited into your savings account.

- Savings works best when it comes straight out of your paycheck. Take advantage of work-sponsored retirement plans.

- Savings works best when you stay away from temptation. Stay out of consumer stores that sell expensive stuff you want but don’t need.

- Savings works best when you work from a budget. Don’t sabotage your good income by frittering away money.