Will you send your kid to college?

Bankrate has an excellent article about a survey of parents on whether they can afford to send their kids to college. It also looks at why they may or may not be able to.

Most striking is how they intend to pay for their kid's college. Many are willing to forgo their own retirement plans. Almost half of them plan to take out a personal loan, and a quarter of parents want to use a home equity loan. Together, this is a whopping 3/4 of parents who plan to fund their children's college tuition by borrowing money.

Here's a nice college tuition calculator, which shows us that a 4 year in state college will cost around $140k assuming you have a baby now, and he or she will go to college in roughly 20 years.

At a meager 5% with a 20 year term, that loan will cost those parents about $900 a month after their young one graduates. The 40% of parents who plan to take extra jobs will certainly need them to pay that bill.

Now here is the difference between being in debt, and saving and taking control of your money.

That same tuition would be paid in full, with cash, if the parents saved just $250 a month from the time that the kid is born.

Taken as a whole, the results seem to point to an unavoidable trap where parents either secure their children's futures or their own. "The poll illustrates that for many households, paying for college will mean sacrificing their long-term financial security by taking out second mortgages or personal loans," says Draut. "This is particularly true for those parents on the cusp of retirement age, who need to focus on securing their own financial future for retirement."

The real problem is that they didn't plan ahead. They didn't save. They didn't manage their money. Instead of looking at the big picture, they spent all they had and made themselves utterly dependent on the credit industry.

$250 a month vs $900 a month...for 20 years. That's what embracing debt has in store for you. Is that an unavoidable trap? No, this is a trap that you build yourself.

Broke making $150k a year

Here's a depressing story from CNN about a couple with 4 kids who are now neck deep in debt and broke. They had 1 kid, planned on having a second and instead had triplets (another reason not to use fertility drugs!).

The real tragedy of this story though is that they had $175k in savings and an income of $90k a year entirely from one spouse. After their triplets came, their savings vanished and they went into debt. I wondered how 3 healthy babies could drain $175k in such a short time when you have $90k a year in income and a stay at home mom!

Now 4 kids is a lot. But many families have more and make it just fine. Yet this couple was spending $2k a month on 3 part time caregivers! Then they had real estate investments, which began to become unprofitable (or even break even). In 2 years they went from $90k a year and $175k in the bank to over $155k in DEBT plus a loss of the $175. 3 extra kids had cost this couple $165,000 a year! That's $55,000 PER CHILD.

It gets worse. They sold some giant farm mansion they were building, cashed out some unpaid leave, yet they were still $127k in debt. They worry about paying preschool tuition (are you kidding?) and saving for college. At the same time, the husbands income has increased a large amount and yet they still can't get by!

They should sell all their real estate (ticking time bombs), stop sending the kids to preschool, get rid of all the nannies, stop contributing to the kids college funds, rent a small house, live off of $50k a year and pay off the debt within one year and slowly begin increasing their lifestyle while socking away most of their income. In 5 years they could be better off than when they started.

This couple has about $150k in income and a 12% employer-provided retirement savings, yet they are wallowing in $120k of debt.

Why is this couple in so much trouble? In my opinion, its because they can't admit they're totally broke.

Dennis says he agrees with the advisers that the couple should pay down their debt and create a cash reserve. But he's reluctant to diversify as much as they suggest and wants to keep enough free cash on hand to cut real estate deals. "I'd like to have $75,000 in my foxhole waiting for the next thing to jump up and buy," he says.

There are so many families that have more kids than these folks and live off of a fraction of what they do. This is a perfect example of how money does not create wealth.

Should a spouse stay home with the kids?

Here's an article, "When parenthood pulls on the purse strings", which goes to extreme lengths to convince you that one parent should stay at home. Personally, I'm all for a stay at home parent in the first few years of life, but I'm not going to go out of my way to convince myself of the benefits that MSN would have you believe. Some of these are stretching it!

Child Care: $600 to over $1,000 per month for adequate day care or in-home child care takes a big chunk out of second paychecks.

True, but spouses can also work part time to cut this down. As well, if the spouse isn't making plenty more than $1,000 a month, he/she probably isn't in a great career or has much education anyway.

Wardrobe: Even in a "business/casual dress" office, you need work clothing and possible dry cleaning.

I have to ask: What did you wear to work before you had a baby? Did all your work clothes magically disappear? Clothes, properly cared for, last many, many years. Unless you were sitting at home doing nothing in before having the baby, this just isn't a factor.

Commuting: One spouse at home frees the other to take public transportation or use ride sharing, possibly requiring only one car between the two.

How, exactly? Couldn't both take public transportation to work, or ride share? If it's an option for one, why not the other? And what does "replacing a sporty car with a family car" have to do with a spouse staying home?

Food: Most couples can reduce dining out and, with good planning, cut take-out food bills as well. Furthermore, careful, coupon-laden grocery shopping might yield huge savings. Don't forget that one spouse will no longer eat out for lunch at work – nor grab premium coffees on the way. That change alone can up the savings by $5 to $25 a day.

Eating out for lunch everyday is just silly. Ever heard of a thermos and brown lunch bag? You know what I would save in food and coffee if I stopped working? $0. Eating out all the time and drinking $5 cups of coffee is a luxury, not a necessity that comes with a job. Did we forget that at some point?

Taxes: Second incomes usually push part of the joint incomes into a higher tax bracket."

Quite possible!

My wife and I both work and our house is always spotless. We clean up after ourselves and do heavy cleanings on the weekends. Having someone home all day makes more of a mess than working and having a kid at day care. The key is good organization and to always be cleaning. While you cook, the dishes get rinsed and put in the dishwasher, right after you cook, the counters get a quick wipe-down. Clothes go in the basket, things you take out get put away when you're done. I can imagine people who make a huge mess find weekend house cleaning to be a monumental task. There is a better way.

Home-Based Income: Through a combination of spousal help, part-time child care or nursery school, and older kids starting public school, many stay-at-home spouses start home-based jobs

Whoever wrote this doesn't have kids! Its nearly impossible to get a full days work done while tending to a kid at the same time.

Simple-Life Savings: If you use your family transition as an opportunity to overhaul your entire lifestyle, you might save a lot more through simple living, dollar-stretching and other philosophies that emphasize second-hand shopping, spending less on personal wants and choosing functional, energy-efficient housing over size, amenities and over-priced neighborhoods.

Uh, you should be doing this already.

This sums it all up:

Budget-Resistant Budgets: If you're already thrifty, your main savings items when dropping one income will be limited to child care and taxes.

Letter to their daughter

All Financial Matters posted a letter from a couple of financial-savvy parents to their daughter. I loved it and wanted to spread word of it around. These parents had $1,000 saved up for their daughter when she was 14, via her allowance. The letter details some investing and saving advice for their child.

Memorable quote

As you can see, when the interest rate doubled (from 5% to 10%), your earnings over a 51 year period grew by more than a factor of ten – from about $11,000 to about $128,000!!

Trivia: Albert Einstein discovered the Rule of 72.

Having a baby - links to other blogs

Here are some great blogger insights into the financial aspects of having a baby.

Home Finance Freedom asks, Is Your Baby Cost Free? and points out the gross overspending we do on our children (although 1 coat for 2 kids is a bit much). I disagree with the idea that a book and an encyclopedia CD-ROM constitutes a decent preschool education. Do parents forget that kids go to school to learn basics like math and science, and come home needing to learn a whole new set of principles like personal finance, morality, business ethics, etc. Learning doesn't stop when the schoolbell rings. 3:30 is not "sit at home and watch TV for 3 hours" time.

Memorable quote

Spending to provide a healthy, happy child is different from spending to use a child as a billboard for the parents’ ostentation.

Does it really take $1,000,000 to raise a kid? I think the mountain of "stuff" is only part of the problem. As All Financial Matters reveals, some parents spend mountains of money on parties and celebrations. Why? Because they want to build "memories" for their kids. The problem is that a "mermaid theme party" at a public pool is commercial and artificial. That's a pretty lousy memory, mom. Want a lasting memory? Take your kid to a national park and spend the birthday trekking around the wilderness (yes even 5 year olds can do this - your kid isn't going to dissolve as soon as he steps off the pavement). Memorable quote

what people spend on their children should be based on their budgets, and that they shouldn’t go into debt just to give little Johnny the best that life has to offer.

Do already have a Baby on the Way? Get Ready to be Shocked. A total cost of raising a baby to the age of 17 is more like $250,000. I assume that's the average. There are a great many different expenses when having a baby. The most expensive that I can see? Health insurance (barring any medical problems). My health insurance costs would nearly double if we added a 6 pound blob with a mouth to our family. The most expensive initial costs I think is the "gear". Stroller, crib, 'running' stroller, changing table, etc. My solution is to just get it all used. But be careful, I've wandered around garage sales looking at baby gear and some parents are nuts for what they are asking for their used baby stuff. Maybe they shouldn't have bought so much junk in the first place? Memorable quote

your baby has passed the stage requiring formula or breastfeeding, the next step is upgrading to baby food. Making your own is a great way to save money

Thrifty Mommy has a bunch of great tips, such as 25 ways to save money with a baby.

The biggest saver that I can think of is just to buy everything used, and accept handed down items. Hit the garage sales for baby clothes, disinfect them well, and have your own garage sale when the baby outgrows them. You may be able to break even! Look for used furniture, not necessarily baby specific.

Be organized. Some parents create a system to organize their baby items like diapers, towels, bibs, toys, etc. Others just throw them in plastic bins or worse, on the floor. I'd be willing to bet the parents who organize things end up utilizing what they already have more and thus spend less. (PS: Creating a system takes far more time and effort than keeping up with a system, so make a plan before the baby comes)

Any other money saving baby tips?

Take care of your family first

Here is my list of priorities:

1) the family
2) spouse
3) the kids
4) ourselves

And here's an example of some people who have it all mixed up, parents who go wild for their kids.

when it comes to their 2-year-old daughter, the young parents -- she is 21, and he is 23 -- simply can't say no.

Why can't young parents say no to their little kids? Are they putting their kids first? I'd say no. The priorities for those parents in the article goes ME, kids, family (afterthought). They don't want their kids to say "mommy never did that for me". The mom doesn't want to work because her 13 year old daughter "needs her" home 24/7? Are they really thinking of their children, or are they just thinking of themselves?

Living on $30,000 a year, one family ends up moving back in with their parents with credit card debt exceeding their yearly income and $600 party extravaganzas for their two year old. What 2 year old is going to care about a $600 party, and how spoiled will he be when he grows up?

This isn't putting your kids first, its putting yourself first. What 13 year old needs a stay at home mom? And what example is that setting, parents strapped for cash and overspending and mom won't lift a finger to help. These aren't simple parenting "mistakes", they are ongoing damaging lifestyles.

Do what's best for your family. If that means that you have to sell a house you can't afford, work extra jobs, and have kid birthdays with cheap balloons and second hand toys to get out of debt, so be it! By putting what's best for your family first, ignoring your own selfish wants and kids wants (kids don't have the perspective to make rational decisions) you create a stable environment for your children. A $50,000 sweet sixteen bash can't even compete with that.

What are we teaching kids about the value of their work?

I admit that I had some pretty big dreams in high school also. I wanted to go to college, graduate, work in a prestigious position and make around $50,000 a year right out of the gate. Of course, reality eventually took hold. Two years out of college and I'm making far less, less even than the national average of $45k annually for recent grads. There always has to be someone at the low end of the curve, and it just so happens I'm among them.

So you can imagine my amusement when I discovered that high school kids these days expect to be making $144,100 a year! (source, MSN)

Potential sources of this staggering income included doctors, IT professionals, and teachers. The article goes on to theorize that this inflated "ego" leads them to make poor financial choices, take on more student loans and credit card debt than they can realistically handle after graduation.

Is it surprising, however, that they are overspending on everything else as well? Is it surprising when our schools have sold out our kids to advertisers and allowed them to be masterfully manipulated into mindless consumers? A complete lack of financial education and ignorance of credit and financial institutions can certainly contribute to their abuse of credit cards.

Kids are being raised by debt-loaded parents with all the pricey stuff (thanks to frequent home equity refinances and tapping in to an inflated market to buy material goods) and no clue of how much their parents actually make. A recent Dave Ramsey airing talked about discussing finances with children, and he agreed that most parents do not tell their kids how much they make and believed it was none of their business. I don't entirely agree, because one thing that does is create perspective.

The article puts some blame on the media and society. Of course its our fault! We have no problem allowing aggressive advertisers full access to our children so long as they shell out the cash for a nice stadium scoreboard. No wonder they overspend.

The credit industry allows people to overspend; the article gives the example of cars. Absolutely. I read about a woman with a $40k income who was given a $40k car loan! A woman at a bus stop the other day was talking on her cell phone about her work (I deduced she was a secretary) and was raving about the $30,000 car she was planning to buy (quite a step up from riding the bus). She must be the supervising secretary of Exxon!

It then gives the best advice I can think of: communicate with your kids. Help them establish that perspective they are lacking, to be more critical of the goods they buy and the ads they see, and to become smart, efficient consumers. Talk about long term goals such as retirement, having a savings fund, how to avoid debt and how credit cards, mortgages, and other loans work.

Schools sell out your kids just a little bit more...

It is bad enough that schools sell your kids out to a multitude of corporations for on campus snacks and drinks. Notice that your local high school only has 'Pepsi' product vending machines? Read "Consuming Kids" by Susan Lin. One such story she writes involves a student that attempted to sell bottled water with a school activity logo on it, and was banned by Pepsi - that's right, PEPSI CORPORATION stopped a student from running fundraiser in her school because it competed with their product - and the school forced her to sell the fundraising bottles off campus only.

The NY Times has written a disturbing article full of buzz words and featuring photos of kids drinking 'Propel Fitness Water', which is no better for you than any other water but costs thousands of percents higher than regular filtered tap. Bottled water alone is ridiculously overpriced, now imagine a water sold by Gatorade. The article may be confusing to read, so I've provided some translations.

“High school kids are more sophisticated than a generation ago,” said Mark Ford, president and publisher of Sports Illustrated in New York, “and brands like Nike and Gatorade are on this, reaching athletes at a much earlier stage than they previously have.”

No, they're not. Studies show they are not, but marketers need to advertise to children earlier in order to commit them to brands. High school kids have no need for flavored salty beverages when they exercise, nor do they need expensive designer shoes.

Many high schoolers shop for the family while their parents work, so they may be buying groceries along with items for themselves.

This exactly why they claim kids are more "sophisticated", so they can start directing advertisements for a variety of products not necessarily appropriate for their age group.

“We’ve spent more than 30 years building our relationships with customers,” said Jeff Webb, chief executive at Varsity Brands in Memphis, which specializes in goods and services for high school cheerleading and dance teams.

In other words, they are hard focused on manipulating your children to believing that one product is better than another, not by critically evaluating that product but by taking what they are told at face value. Nike must be good because kids a little older than I am, more "sophisticated" are wearing it. Secret deodorant must work better than the other brands because that girl is popular! Their 30 years of 'building relationships' has resulted in programs like "Channel One" that gives TV equipment to schools in exchange for forcing your kids to watch commercials in the morning, or faux news programs that as the article says "weaves brands" into their stories. Any parent has to be in a coma not to see its impact on their children's purchasing preferences.

And by sponsoring local teams, advertisers “get the benefit of seeming to be part of the community,” he added, even when they are not.

Of course they are not. Do you think Pepsi cares about your kids? They are there for one reason: the money they give to your schools is inevitably returned to them by convincing your children to buy products, either of a certain brand or to buy products they normally never would - or in larger volumes than they usually would. In addition, these sponsorships and deals come with exclusivity contracts that locks competitors out of the school, as well as quotas that force schools to encourage consumption of the product in order to meet the contract terms. They are profiting off your children's manipulability. That is why they are sponsoring sports programs.

“We don’t want to be too intrusive,” said David Birnbaum, chief executive at Takkle

Of course they don't. If they are too intrusive, it generates a negative image of their product. Their message is clear: Our product is the best, you need it, and our company is sensitive to your needs.

For instance, no ads appear on the takkle.com home page, Mr. Birnbaum said, because “it’s not just about the dollars.”

What this really says is that they have enough revenue generated by the increased consumerism thanks to their sponsorships that they don't need to put ads on the site to cover its operating costs. But even this is too simple. The entire website is an advertisement because of its association with its corporate sponsors and the ads it displays outside the website itself. There are no ads in Shrek for McDonald's hamburgers, but the association that children have with that character draw kids into the fast food joint when they put Shrek's face on a happy meal. By selling the license to use their characters, the movie itself becomes an advertisement for whatever company also use the characters to sell products. Just because there are no direct ads on the website, savvy consumers know that the site is not "ad free".

And although “I’m not going to say we wouldn’t” ever accept sponsors that peddle products like candy or soft drinks, he added, the intent is to run “the ads that the athletes want to see, that speak to their passion and engage them the way they want to be engaged.”

Of course they would! So long as the presence of the ads would not hurt their reputation or reduce visitation to the site, they would absolutely sell ad space to anyone with a checkbook. "Speak their passion" and "engage them" are buzz words for ads that use children's existing interests to turn them in the direction the company wants, towards their product.

(When Varsity Brands works for PepsiCo, employees distribute Propel Fitness Water to high school cheerleaders rather than soda.)

So? This isn't just about the nutritional value of your product. Propel Fitness Water does absolutely nothing that ordinary water wouldn't do. It hydrates, that's it. Vitamins and minerals are good for a healthy body, but a healthy diet would already be delivering those vitamins. Downing a bottle infused with vitamins doesn't give you more energy, or revitalize you in any way because those vitamins are slowly metabolized by your body. Unless they sneak in some caffeine to give them an artificial high?

And, I wonder given the production costs and higher expense of Propel water verses a bottle of soda, if Pepsi isn't making more by peddling water than its classic soda.

Female high school athletes were assembled in focus groups to gather opinions, he added, which led to changes in marketing approaches.

In other words, they took your kids time, free of charge, to gather data that will help them better sell their products, convince your children to buy more of their products, and inevitably take more of your money. And we should feel good about that?

What about going even younger? “I don’t think we’re looking to go into middle school or younger,” Mr. Bedol said.

Why bother? You're making plenty of money by marketing to those younger children in other ways.

FREE Practical Money Skills educational materials

Want to teach your kids about money but don't know where to begin? Go to http://www.practicalmoneyskills.com/english/resources/about/classroom.php and click "Classroom Resources" and "Download 2 CD-Rom set (75 mb.zip)" to download and burn to a CD (cd burning software required - usually comes with a home computer), or just load right on your computer.

Some of it is repeated material. For example, the "Practical Money Skills for Life CD-ROM" is the same as Disc 2 of the classroom resources. There is also a pamphlet series, but it has only general info and I consider it more of an introduction to the more detailed lesson plans.

Disc 1 is where the good stuff is. It contains lesson plans for kids in 5 groups, preschool-2nd grade, grade 3-6, 7-12, graduates and college students, and a special needs section (the addition of this last section scored big points with me). The Macromedia Flash interface they give you is a bit clunky. Basically all the material is in html, pdf, and powerpoint files. You might find it easier to just browse the files in the directories themselves, print the pdfs and htmls, and load the powerpoints manually (I couldn't get the Flash interface to launch the powerpoint presentations). Disc 2 has some practical but basic info for financial situations you might encounter at home, all in html format. There are also some games that kids might enjoy, but the only one I tried at length was the Quiz.

It wasn't very good, and some of the information wasn't quite correct. The credit card section also didn't quiz on the most important aspects of credit cards - reading and understanding the terms. It was also very flashy and loud, and not in a good way. I would stick with disc 1.

Also, its very disorganized and difficult to find the referenced materials. Although you can download the lesson plans to a CDROM, it doesn't contain just about all of the actual materials needed to learn anything. For that you apparently need to download them individually from here . There also did not appear to be any way to take the quizzes without being online.

Even so, the lesson plans are a useful guide, but expect to do most of the actually learning materials on your own. If anyone has had any experience with this program, please share it. For the conspiratorial among us, this program was created by VISA.

Also available is the Jump$tart Coalition, an education program for children who recently issued tests of financial literacy. It is sponsored by Citibank. If there are any consumer financial awareness/education programs out there that are not created by credit card companies, please let me know.

The cost of a baby?

Savingadvice.com recently did an article on the common myths of adding a baby to the family. This has a special interest to me as a non-parent because my wife and I have talked about having a child.

So, I've heavily researched this topic as well. Here are my comments on their 'myths'.

Myth #1 Your cute new baby is going to cost you hundreds of dollars per month in food and feeding supplies:

While breast feeding is free, many mothers cannot for a variety of reasons. Formula, then, is going to be a huge expense. However this falls into the 'what if' category, which can include having a baby with severe medical problems leading to a huge financial drain. After they are weaned however, parents can save a lot of money by making their own babyfood.

Myth #2 You will spend a ton of money on clothes to keep the baby warm:

While they suggest Walmart and Target for discount clothes, I recommend yard sales. Babies go through clothes like there's no tomorrow, so there is no shortage of parents looking to offload their old baby clothes for a buck a piece. Soak them in some good disinfectant/soap and wash when you bring them home, and you'll likely have a closet full of clothes that were worn less than the new shirt you bought at Dillards (ever wonder how many people 'tried on' your shirt before you bought it?).

Myth #3 You might as well buy stock in the diaper company

Cloth diapers will save you money, but I've yet to run the numbers on just how much. But the benefit to the environment? Indispensable. We may try both, but remember there are other costs associated with cloth diapers including the water/electricity used to wash and dry them. I would also be concerned with keeping the washing machine clean.

Myth #4 You have to buy everything on a list in order to have everything that you need for your baby

More ways to spend your money. However even if you must have or really want all of the items on those lists, they can easily be found used for far less.

Myth #5 You have to buy special detergent to wash the baby clothes with

I had never heard of this, and certainly don't agree with it. What difference would the detergent make so long as they do not have an allergic reaction?

Myth #6 You need a nursery or an extra room for the baby

This may be a myth, but I support it! For one, I don't agree with letting your baby just lay on a blanket on the floor - especially if you have pets. Or if you wake up in the morning groggy and frequently trip over things on the floor while headed to the bathroom. But having a separate room certainly helps parents take turns doing the baby thing while letting the other sleep.

Here's what they don't address, the "real" costs of having a baby.

Daycare: Daycare is going to cost you an arm and a leg, and infants can be placed in day care as young as a couple of months old. For two professional parents who need their incomes to support the household, this is a necessity. Paying a thousand a month or more on daycare is quite common.

Insurance: This is also going to be a huge expense. Depending on your company's plan (or worse, if you are self employed) your family health insurance plan could cost more than your home. If my wife and I had a child, we would either have to cut our benefits or pay more than we pay for our mortgage/taxes/insurance combined.

Lost Wages: When both parents work, you are undoubtedly going to be losing wages when you have a child.

Who's educating kids about credit cards?

Once again, we see why we should have mandatory financial education in this article from CBS about "Generation Plastic", college students fresh from graduation with mountains of not just student loan debt, but credit card debt.

I didn't understand interest and what a high APR was — I really just didn't understand the concept, and it seemed like a good idea — like (I) can't afford it now, but I will pay it off later

These college students are flooded with offers. They get them in the mail, the universities happily let them set up booths on campus, and they get phone calls. It's the same brand loyalty marketing that we see with other products. Children's games feature VISA cards (monopoly now uses 'debit', yet I doubt the new monopoly teaches what happens when you overdraft your checking account). The toys advertise credit cards. Is this surprising? Companies are advertising to children younger and younger, with more kids being exposed to subliminal ads and product placement than ever before (teletubbies, anyone?).

How many of these kids are getting an education to defend themselves against the onslaught of corporate greed?

I would say in a classroom of 20, maybe 1 or 2 of them

Without classes in schools teaching kids about this stuff, they rely on their parents. But their parents aren't giving them this critical information. What defense do teenagers have entering college against companies that offer them free stuff just for signing up for a 'credit card', then all they know is that "Hey, Barbie loved her credit card, I need one too!". Are these kids asking what the card terms are?

Of course not.

I didn't understand interest and what a high APR was — I really just didn't understand the concept

Text Messaging revealed

If you have a teenager, a pre-teen, or even an elementary schooler, you need to educate yourself about text messaging. This relatively new phenomena has turned into a frenzy, and cellular service providers are raking in money hand over fist.

For the completely clueless parent, check out this Wikipedia article.

You really need to know about text messaging if you have not already built it into your plan. Even if you didn't ask for it, it is always enabled by default, every phone can utilize it, and you get charged for it whether you sent it or received it. Although most providers do (and I feel it is their legal obligation to) allow you to disable this feature from your plan, your kid probably isn't going to like that idea. Unlimited text messaging isn't cheap, it will run you around $10-$30 on top of your regular plan. If you can't say no to your kid, or use text messaging yourself on a family plan, this is a safer option than a message bundled plan that charges you the regular rate after 500, 1,000, 5,000, or however many texts the plan includes.

And yes, it is possible for a teenager to transmit 5,000 messages in a month. Both incoming and outgoing messages - yep, you pay for them and they come out of your bundle. A few friends texting back and forth on a daily basis can really rack up out of control charges. And the phone companies love it. The messages are short, pointless, and expensive. And when texting between 2 phones on the same provider? Yep, that company gets twice the buck for one message.

It's become a nickel-and-dime cash-cow for the providers. Just about everyone gets a text message they never asked for, usually from a wrong number or sometimes from spam. No one seems to be complaining, possibly because no one scrutinizes their bills like they should, and even then it isn't work spending 30 minutes on the phone with customer service trying to get a dollar credit. The result is over their millions of customers, providers are raking in millions in accidental and unsolicited messages.

Each message costs 15 cents, if not included in a plan. Any message above your bundle is charged 15 cents also. The only way to avoid this is the unlimited plan (but always check the find print to make sure 'unlimited' really means unlimited). Either way, you'll be happy to know that you're still getting ripped off no matter what. That's because texts are hugely marked up compared to other identical data, and separate from the regular data plan you would have to pay extra for also. Why? Because it's profitable of course. Imagine if your electric company decided to start charging you 5 times for electricity you use for your computer over any other appliance. See the problem?

You might be interested to know that texting also involves its own acronym language. You might need a Chat Translator to figure it all out. Unfortunately, reports are coming in from teachers that this new 'shorthand' is affecting their utilization of proper language.

Educators are taking notice. You need to take notice, because whether its a $500 unexpected phone bill or a teen who turns in an essay titled "Grg Wshngtn i thk hs gr8", a nice chunk of money is coming out of your pocket and into a utility bill.

Vanguard Podcast: Young investors

A great little podcast that I had to pass along. Vanguard gives tips on 401ks and other investments for young people.

Vanguard Podcasts

Highlights:

• Investing is for your long term goals
  
• Regular savings don't provide high returns
  
• Spend less than you earn
  
• Credit card debt must be resolved before investing
  
• Even small investments can go a long way if you start early and do it regularly
  
• First investment priority is saving for retirement
  
• Target-retirement funds can provide an easy way to begin investing
  
• Teach yourself about investing through online articles, parents, etc.
  

529s get even better!

Congress recently added new advantages to the popular 529 investment plan for college savings. The savings vehicle can now accumulate interest and be drawn tax free. This is a great advantage to parents who are saving for the children's college expenses because they will not have to pay taxes on the account as it grows. Another benefit? A child can still qualify for financial aid (grants, scholarships, etc) because it is not included in their total assets. All students must submit a FAFSA that lists their assets and, in most cases as dependents, their parents assets to determine what kind of financial aid they qualify for. Once again, the 529 comes out ahead as the ideal college fund.

If you don't already know what a 529 is, you should definitely read up on them.

Why save for your children's college? I find it incredulous that some parents do not believe in saving for their kids college education. College is no longer optional, and the cost continues to rise. It is absolutely impossible for a student to work their way through college anymore. As is the case now, and will be more so in the future, the basic tuition will be more than any part-time high school graduate could possibly make.

That leaves 3 options: Scholarships, grants, and loans.

Scholarships are the ideal solution to paying for college, but here's the rub. Not all kids are going to qualify, and just because you can't get a scholarship doesn't mean you won't do well in college.

Grants are great for low income families and they can sometimes pay a very large portion of tuition. I myself used grants during college.

Loans are the worst possible way to finance college, yet everyone seems to take them for granted. You not only pay far more for your education over the long term, but you put a young adult fresh into the business world already in a mountain of debt. Graduate students, borrowing money all through college, will likely have a monthly loan payment higher than their parent's mortgage. Face it, college isn't a guarantee at a job, and everyone starts at the bottom. Despite recent polls of students whose expectations are far too high, most college grads won't be making six figures out the door. Yet that $1,000 a month loan payment is still going to be coming in the mail whether your kid is making $30,000 a year or $100,000.

If you are ready to start, you can open up a 529 online at sites such as Vanguard.com.

Moms Most Influential in Teaching Finances

Some not-so-great news for moms comes at us in this article, moms more influential than dads at teaching Americans about money.

Way to go moms! But maybe being influential isn't enough. Why? Because a Jump$tart Coalition for Personal Financial Literacy survey found that graduating seniors scored a 52% on a personal finance and economics literacy test. Oops.

Obviously these skills are not being taught in school, and although Janet Bodnar praises women for teaching Americans about finances...their kids failed. Looking at the debt and mortgage problems we adults have put ourselves in, I think we need to work a bit on our own education as well.

Do we dare ask what score parents would get if they were given the same test?

In case you didn't know (I sure didn't) April is Financial Literacy Month.

How much are we messing up our kids? - Part II

To recap, we're 20s, 30s, and 40-somethings living like our parents did 30 years of hard work later. And to do it we plunged right into a pool of consumer debt to cover our excessive spending. Negative net worth became the norm. Every time the ship begins to sink, a new loan package emerges to keep us afloat. The real estate boom gave us the cushion we needed as we refinanced to pull cash out of the equity we built in our homes. The loan officers made it sound so great. Free cash. A loan touted as a return in an investment.

Not only did we live like our parents, we surpassed them. Our generation thinks it quite normal to spend $100 a month on cable, $2,000 on a plasma screen, $150 on a DVD/VCR combo, and let's not forget the TiVo subscription and Netflix deliveries. And that's just to watch TV! Add on the high speed Internet, commercial-quality kitchen appliances, luxury bathrooms, GPS in the leather-clad SUV; and $130 a month for telephone? A cellphone is a basic necessity for all living organisms, right?

And college? 50 years ago if you couldn't afford it, you didn't go, or your worked your way in and paid with cash. Now the average student loan is around $25,000, and it's going nowhere but up. Into this upside-down financial world enters our children.

You couldn't imagine growing up without a microwave or air conditioning. Picture not being able to live without 200 channels of entertainment, contact with anyone right at your fingertips, and all the best luxuries credit can buy all the time. Our 2005 national savings rate was negative. Negative. We have it all. Financed. Our children see us not in debt and struggling to make interest payments, but as a model of how personal finance works. Debt isn't bad, it's a way of life. I can have anything I want, instantly. I deserve everything I desire. After all, we were taught how special we were, it makes only sense to pass that along to our offspring.

But what is going to happen when our children grow up and they hit the wall of the real world? How will a kid with $100,000 in student loans, $10,000 in credit card debt, $15,000 in car loans, and no savings make it on a $30,000 a year job? Unlike our generation, they won't have the option of coming to mom and dad for rescue; we'll be just as broke as they are.

TiVo doesn't look so great now. (continued...)

How much are we messing up our kids? - Part I

If you haven't already, bookmark this website: http://www.federalreserve.gov/releases/. It contains a mountain of financial statistics for the country. We have a revolving outstanding credit card debt in this country of about $3,000 per person. When you look at the economy and how the average American is keeping themselves in the middle class by spending more than they earn you have to wonder what kind of message this sends to our kids.

Maybe parents don't even let their kids in on their dirty little secret: we're in debt up to our eyeballs. And herein lies the problem. Our generation (20s-40s) grew up out of the economic boom and social revolutions of the 50s and 60s. We grew up with microwaves, cable TV, air conditioning in every home and two cars in every garage. The feminist movement and medical breakthroughs in easily-accessible contraceptives meant that couples were having children on their own terms, later in life and when they were more financially stable.

The result is a bunch of kids who never knew the 'lean years' of their parents, when it was a tough job just to put food on the table. Dad (and usually mom) had one good paying job, a nice pension and/or 401k and looked forward to a social security check. Before the sudden slew of sneaky credit cards, their credit was relatively good and their revolving debt low. "Debt" was a mortgage, and a car payment. Add to it the self-esteem movement where every kid was drilled into believing they could do anything, could have anything, and could be the best at whatever they wanted. And thanks to mom and dad's financial successes, we actually did have it all.

So here we were, born into this lavish lifestyle, and suddenly we're out on our own. But something went wrong. Where were the six figure jobs? Where are the assets to buy that new car? Wait...I have to build credit? However the struggles, we were told from the beginning that we were entitled. We deserve that great job, that big house, that luxury car. We can't have it? Blasphemy!

Enter the credit card industry, our caped hero to rescue us from harsh reality. Can't afford college? Finance it! Can't afford that car? Finance it! Need groceries, gas, a rent payment, some new clothes, a fancy dinner, but don't have the cash? Finance it! Interest? Don't worry about that, your monthly payment for all this is only $20 a month. Look at that! We can live just like our parents, right out of the gate!

And then we started having our own kids. (continued...)

Mandatory financial education

I would fully support mandatory financial education at all stages of schooling, from elementary on up to high school. I would also happily accept an increased property tax to cover the cost. Consider it an investment. A few dollars today to ensure that I'm not suffering through inflated interest rates caused by the poor financial decisions of the upcoming generation.

There was never any real finance classes when I was growing up. A few teachers spent some time teaching us about stocks and managing a checkbook. No one ever mentioned what a W2 was, or how to fill one out, or what all those "tax" things it mentioned were. Every kid knows what taxes are, the government takes some of our money to do...well, whatever it does with it. But how many kids are explained to that taxes are fully 100% their responsibility, right down to the fees and interest they are charged should they make a mistake and short-change uncle Sam. Even if the IRS makes a mistake it falls to the taxpayer.

Taxes are perhaps the most important aspect of financial planning, one that can have a profound affect on your security. Defaulting on a credit card may leave you with bad credit but unlike the IRS, Citibank can't dip its hand into your savings account and take whatever it feels you owe it.

How many kids these days are going to graduate from High School knowing how to choose a 401k plan? Or understand how a two-cycle average daily balance interest charge works? Or how much mortgage amortization costs for a young loan? Not many, I'd imagine.

A week out of high school and these kids have entered a world where their contracts are binding, one mistake can put them into debt for decades and the burden for retirement savings is placed squarely on them. Suddenly they have to build credit but know what compounded interest is, let alone how it's calculated. Many adults have trouble with all of it.

It's no wonder we're in trouble. We're a nation of uneducated consumers breeding uneducated consumers surrounded by money-hungry corporations and institutions whose terms and conditions are constantly reviewed by a panel of experts with the single goal of taking as much money from our wallets as possible. How are we supposed to compete with that?

Education is the only line of defense we have against the onslaught of confusing contracts and hidden fees. The best place to begin this education is early in the classroom, or better yet; at home.