New Credit Card Rules & The Time Value Of Money

Every now and then, governments implement useful new regulations.  It was the case when Tobacco companies were required to put health risk warnings on all their products and advertisements and here is another one which has been long overdue IMHO. The Federal Reserve's new rules for credit card companies mean greater protections for consumers.  On their Website, the Federal Reserve lists some key changes you should expect from your credit card company beginning on February 22, 2010.

There are various new rules which all make sense in terms of limiting the shark-like behaviour of some of the more notorious credit card companies.  Perhaps the most important part in terms of a financial literacy aspect are the new rules for late payments and minimum payments.

Have you looked at your credit card statement recently? The first page should now look something like this:

The prominent displays of late payment and minimum payment warnings should provide some deterrent credit hungry consumers. 

As an exercise, hopefully creating some form of an “aha” effect with your kids, use the example given to show the difference of paying something today versus delaying payment. A perfect example of teaching the time value of money.  You could go over several different credit card statements to emphasize the impact of compound interest over time.  For older kids, take out the calculators and run through the calculations.  Have fun with it!

Funny Money, the fun site to learn about money

This is an excellent concept I just came across: Funny Money is a website based in Canada using cartoons and interactive tools to teach kids about basic concepts of money.  As they put it: North America's #1 fun-ancial seminar.

Please check out this excellent cartoon: Get it on Credit
The cartoon teaches kids about credit cards. While being entertained they also learning about credit cards, payment terms, compound interest and credit scores. Enjoy!

 

Click here to watch the video

Using A Cell Phone As A Learning Tool For Money 101

Karyn Hodgens discusses a novel approach to teach some money 101 lessons to kids in her article:  The Cell Phone: A Powerful Learning Tool

Teenagers love their cell phones (iPhones in case they are of the trendy kind). What better way to make your kids really appreciate those "vital" gadgets than by making them understand there's a cost associated with being hip and keeping up with the "in-crowd". 

Consider that your kids should pay for these luxuries or that they should make payments in-kind by mowing the lawn, doing the dishes, pulling weeds (my personal favorite).  As Karyn suggests:

Now comes the fun part. Kids learn to manage their money in the context of something they love…their cell phone! Upgrades? They pay. Overages? They pay. New phone? They pay. Lost phone? They pay. Unpaid bill? No phone. See how simple it is? Okay, so it’s going to take a few months before everyone understands how the whole thing works, but when that happens, it’s a thing of beauty. Kids are happy; as long as they pay the bill, they stay connected to friends. Parents are happy; their kids are learning real life skills. It’s another win/win.

It sure sounds like a good proposition for kids and parents alike.

The Concept Of Value For Money

Karen Payne Sledge,CFO at SledgeCraft, Inc., came up with a wonderful idea in terms of teaching kids some basic money management concepts. Please consider the following guest blog to see how Karen brings some aspects of "value for money" into the discussion:

One aspect of teaching kids about money is teaching them how to spend money, or how to shop wisely. One concept I've taught my daughter is to estimate a cost-per-wearing for clothes or a cost-per-use for other items. For example, if she is shopping for a pair of jeans, she needs to ask herself if she is looking for a "basic, wear 3-4 times a week all year around" pair, or a "these are kind of faddish, can only wear with my heels with certain tops twice a month in only the summer" pair.

Say she found a basic pair for $75, which would work out, conservatively, at 3*52=156 wearings for a year, divided into $75 = $0.48 per wear. Then say the faddish jeans were on sale (also taught her to be wary of buying stuff you don't need, just because it is on sale, but that's a lesson for another day) for "only" $25. This would work out to 2*3=6 wearings for a year (summer), divided into $25 = $4.17 per wear. So in this example, the more expensive jeans are the better buy.

I'm happy to say that I've seen her put something back that she tried on from the sale rack that was only maybe $10 or $12, but it was late in the season, she thought she could only wear it a couple of times before putting it up for the season, and thought it was too faddish to still be in style by the same time the next year, making it $5 or $6 per wearing.

The point is that sometimes paying more money is the better buy and sometimes the lesser price is better. It depends on the level of quality required for the expected number of wearings and how lasting is the style.

What are you doing in celebration of the national financial literacy month: April?

April is the national financial literacy month. This time of year, the dreaded April-15 deadline looming, sounds like a good opportunity to have some discussions with your kids about money and taxes.

Here's one thing you can do:

http://www.financialliteracymonth.com has a neat ebook with tips submitted by financially savvy consumers. It's an easy read and very useful to start some discussions about alternatives to spending. Recommended for both parents and kids.

Free download is here: http://www.financialliteracymonth.com/ebook/MMI-Tips-for-Change-03-09.pdf 

What are some of the talks and experiences you had with your kids? Are there any topics or exercises you can suggest?  Welcoming comments and tips from all readers.

KPCC's Airtalk: How to teach kids about money

Please consider this very insightful and rather timely discussion about money and kids at KPCC's Airtalk.

http://www.scpr.org/programs/airtalk/2010/04/08/how-to-teach-your-kids-about-money/

Personal finance columnist Kathy Kristoff joins David Lazarus in a discussion on how to teach kids about money. There are a number of good ideas and recommendations that you can easily implement in your family.

My personal favorite is the idea of setting up a Family 401K Plan.  Kathy suggests a simple savings matching plan.  Whatever amount your kids save at the end of the year will be matched by an equal parent contribution which sounds like an excellent incentive to save.

In closing, Kathy reveals that her number one money lesson for your kids:

"Balance: Use money as a tool, make it make your life better; realize that you don't work for money, money works for you."

Sounds like the perfect money mantra for parents as well...

Good money habits that work for kids (and for parents): Living Below Your Means

As any seasoned investor or entrepreneur can tell you: There is no single formula or recipe to become rich. Most successful people will tell you that it takes a lot of hard work to arrive at a point where you are financially on sound footing. There is however one way to increase your financial net worth over time by simply living below your means. Spend less than you earn and you will increase your wealth over time.

To meet some role models for the notion of living well within your means, please consider this insightful article: Five Billionaires Who Live Below Their Means.

Topping the list is Warren Buffett, one of the wealthiest self-made billionaires and also one of the most successful investors of our time.  Mr. Buffett is the most un-assuming, low profile person you could ever meet.  As legend goes, he still lives in the same house he bought decades ago for only $31,500.  How is that for an example of dealing with real-estate bubbles. 

Mr. Buffet may be the epitome of the "living below your means" school of thought and he may have taken things to an extreme.  But the lesson is clear: Spending less than you earn could be the single most important habit ensuring a sound financial future.

April: The National Financial Literacy Month

The month of April is recognized in the United States as National Financial Literacy Month. This month is chosen to stress the importance of financial literacy and teach Americans how to establish and maintain healthy financial habits. In light of continued economic challenges sound money management skills are needed more than ever to cope with increased uncertainty, dealing with debt and possibly facing lay-offs, foreclosure or personal bankruptcy.

What better way to make an impact than by practicing some of those sound money skills with your children?

Karyn Hodgens of http://www.kidnexions.com  is an expert in teaching basic financial skills to kids.  To celebrate the Financial Literacy Month April, her site is doing a 15-day online challenge called Beyond-the-Piggy-Bank which starts Monday, April 5. She describes it as a way for parents to set up a money "system" with their kids and also learn how to teach money as a part of every day life.

The challenge is free and you can sign up here:
http://www.kidnexions.com/BeyondthePiggyBank.htm

Oh and sorry, this is not an April Fool's moment...

Best of luck with the challenge and here's to a frugal month of April.