How and Why to Give Kids an Allowance

coins-in-handThe days of paper routes are over, yet the market is flooded with gadgets and games kids insist they must have in order to simply exist. It’s a tough parenting world today. We want to teach our kids responsibility, work ethic and long term gratification. These values can be modeled, and they can also be instilled in the younger child. Once your child is eight or nine years old, it’s time to start.

Ground Rules

One of the ways to instill these values is through having your child earn an allowance. It’s a wide range here, given the huge maturity differences between eight year olds and fifteen year olds. Some basic pointers on establishing the ground rules and expectations for an allowance follow.

  • Select what works for your family and good luck!
  • Work together with your child to establish the the rules and expectations.
  • Decide on what chores will need to be completed and what the payment will be.
  • Will this happen on a monthly basis or weekly?
  • Can the child accomplish part of the list and receive partial payment?

The more you engage your child in this process, the greater sense of ownership they’ll have. If they suggest they don’t want to work for an allowance, that’s fine too. Just let them know they won’t be receiving any discretionary spending money each week. That may eventually begin to burn!

Quality control

Will you ensure that the chores are completed to the best of our child’s ability in a timely manner or will you ask your child to check behind himself? Remember, this is a learning process and won’t necessarily go smoothly out of the gate. Work together to look at the final product. This will reinforce the value of responsibility and pride in one’s work. It’s a slow lesson to learn and trait to develop, but you will be giving them a gift that will last longer than any of the latest must have gadgets on the market.

Encourage your child to set short and long term goals with the allowance he receives. Setting aside a portion of the allowance each week might result in a trip to the Disney Store for a favorite toy or figurine. A short term reward might be a trip to the ice cream shop. Encourage, empower and reward your child throughout the process. Establishing the foundations for an allowance will help develop the values of responsibility, work ethic and long term gratification that are so critical in all aspects of life. Good luck!

7 Critical College Savings Questions Parents Should Ask

By Pamela Yellen

Paying for college without spending your life’s savings is one of the biggest challenges families face today. Many folks feel they must choose between saving for their children’s education and saving for retirement.

But what if there were a strategy that allowed you to do both? This is one of the advantages of the savings method I call Bank On Yourself. It uses specially designed, super-charged dividend-paying whole life insurance policies that grow by a guaranteed and pre-set amount every year. More than 500,000 Americans are using this method, many to simultaneously save for college and retirement.

In researching hundreds of savings strategies, I found this method be superior to traditional college savings plans, such as 529 college savings plans, UGMAs, UTMAs and student loans, for a number of reasons. Here are seven questions to ask when considering the best way to pay for college:

1. Do you have full control over how and when the money is used? With limited exceptions, you can only withdraw money that you invest in a 529 plan for eligible college expenses without incurring taxes and penalties. With UGMAs and UTMAs you lose all control the day your child legally becomes an adult. Student loan proceeds are paid directly to the college, so you have no control. The Bank On Yourself method gives you complete control.

2. Can you avoid having the funds count against your kids when they apply for federal student aid? Student loans and the cash value in a Bank On Yourself plan are not considered as assets. But the money in your 529 plan is counted as your asset, and UGMAs and UTMAs will be treated as your child’s assets. Having these assets will likely penalize your child when they apply for need-based financial aid.

3. If my child earns a full scholarship or decides to be an entrepreneur instead of going to college, can the money be used for non-educational purposes? The answer is “no” with traditional college savings plans; “yes” with the Bank On Yourself method.

4. Can I use the plan beyond college? The Bank on Yourself method allows you to use your savings however you choose. With 529 Plans, there’s the “Gotcha” of taxes and penalties. With UGMAs and UTMAs the money is not yours – it’s your children’s, and they can use it for whatever they want. Student loans can extend beyond college, but in a bad way – these loans can haunt the student for decades.

5. Are there tax benefits? With 529 Plans you may be able to get a state income tax deduction for your contribution, depending on where you live and the plan you choose. If the money is used exclusively for college, the gains in your plan, if there are any, can be tax-free. Gains in UGMAs and UTMAs can be taxed at the minor’s tax rate instead of yours, so that may save you some money. With student loans, there may be a state income tax interest deduction, depending on your income. With the Bank On Yourself method, you can take money at any time, and for any reason, and it’s possible under current tax law to do so with no taxes due.

6. What happens with my plan if I die prematurely? This is an important question, and unfortunately it’s one most families fail to ask. Among these college savings plans, only the Bank On Yourself method comes with a death benefit that allows your savings plan to “self-complete.”

7. Is growth of money in the plan guaranteed? In a 529 Plan, absolutely not.

With UGMAs and UTMAs, probably not, since most families put the money at risk in the stock or bonds markets. With student loans, the only thing guaranteed to grow is the debt, if interest payments are deferred. With the Bank On Yourself method, growth of principal is predictable and guaranteed.

This method also offers a great way for grandparents to contribute. My husband and I have done this for our two grandchildren, who are now 10 and 12. The plan we set up for our grandson is projected to provide about $90,000 for his college education expenses by the time he graduates, based on current dividends. Our granddaughter’s plan is projected to have a value of about $125,000. And if either of them decides to become an internet entrepreneur, rather than go to college, the money could be used to help fund their dream.

About the Author: Financial security expert Pamela Yellen is author of the New York Times best-selling book, The Bank On Yourself Revolution: Fire Your Banker, Bypass Wall Street, and Take Control of Your Own Financial Future. Pamela investigated more than 450 financial strategies seeking an alternative to the risk and volatility of stocks and other investments, which led her to a time-tested, predictable method of growing wealth now used by more than 500,000 Americans. For more information, visit www.BankOnYourself.com.

Planning Your Kids’ Retirement

Should You Start Planning Your Kids’ Retirement?

kids savings/retirementWhen our generation was growing up, we were taught about Social Security, and many of us had grandparents who were reasonably comfortable with a combination of their investment income and their government checks.

Today, not so much.

Over the last few years, we have seen the market crash and burn, and Social Security is on its way toward doing the same. So, if we’re scrambling to salvage our retirement income, imagine what it will be like for your kids. If you haven’t done that already, one expert has some good news for you.

That’s why Rick Rodgers, a retirement counselor and author of the new book The New Three-Legged Stool: A Tax Efficient Approach To Retirement Planning (www.TheNewThreeLeggedStool.com), believes that parents can help their kids safeguard their retirement by starting now.

“When we were just starting out in life, our parents told us to start saving money right out of the gate, but we didn’t listen,” he said. “Instead, we ran up our credit card debt, spent more than we earned and bought more house than we could afford. But our kids can and should learn from our mistakes and helping them to start saving now could give them a nest egg or millions instead of thousands.”

Rodgers advice includes:

  • Start at 16 – Just $5,000 contributed to a Roth IRA each year for 5 years starting at age 16 could be worth more than a million by the time the reach age 65.  In a Roth IRA all that growth would be tax-free when withdrawn.
  • 10 Percent Rule – Everyone should save a minimum of 10 percent of their take home pay.
  • Shelter Early – Ideally, you should save in a Roth IRA account at the beginning of your career.  When you reach your peak earnings (usually around age 40), switch to a tax-deferred account like a 401(k).
  • Fun or Fund? – Take half of what you have been spending on gifts (toys, games, etc.) and invest it in a mutual fund for your child.
  • Birthday Booster – Encourage friends and relatives to contribute to the mutual fund account you’ve started instead of buying gifts for birthdays and holidays.
  • Every Little Bit Helps – Contributing small amounts on a regular basis is a better strategy than waiting to accumulate a larger sum.  Get in the habit of saving something regularly.
  • Use the Refund – Let the government help.  Currently the child tax credit is $1,000 per child until they reach age 17.  Discipline yourself to save the credit when it is returned to you as a refund.

“It doesn’t take a lot to give your kids long term security,” Rodgers said. “The magic of compounded interest can do more of the heavy lifting as long as you start early and contribute often.”

About Rick Rodgers

Rick Rodgers, Certified Financial Planner, Chartered Retirement Planner Counselor, Certified Retirement Counselor, and member of the National Association of Personal Financial Advisers, is Founder and CEO of Rodgers & Associates.

Rick’s expertise in the investment and financial advisory profession began with one of the big Wall Street firms in 1984. Twelve years later, he founded Rodgers & Associates as a way to concentrate on financial planning. His vision was to help families prepare for a worry-free retirement through the creation and conservation of their wealth. Today, as a leading retirement expert and personal wealth adviser to high net worth individuals, Rick provides integrated financial, tax, and investment strategies, retirement planning, executive compensation, estate and charitable planning.