Personal Finance Blog for Retirement and Investment Advice

Mission Not Impossible: You Can Teach Teens Financial Responsibility

February 9th, 2011 by Pamela Yellen | 7 Comments

Executive Summary: While teens can be hard to reach, the teenage years are the perfect time to teach kids the saving, spending, earning and investing habits they’ll require to enjoy a lifetime free of financial strain and worry.

These days, money in and money out is mostly electronic, meaning the speed at which our children must make the right or wrong financial decisions has accelerated. Launch your teens’ money management education by explaining to them why most adults fail.

Let children know that the solution can be found in the proven strategies of fiscal self-reliance that are embodied in the Bank on Yourself system and help your teens create their own vision of a secure and rewarding financial future.

There are plenty of practical steps you can take to make the entire subject matter more interesting to teens. By Pamela Yellen and Dean Rotbart

Russ Bragg has a higher financial IQ than most parents. He started out as a credit analyst for an international bank and began offering comprehensive financial planning services in 2000. He is an expert at helping clients define and then achieve financial independence.

For Bragg, you might imagine, educating his teenage son and daughter about proper money management would be a no-brainer.

If, on the other hand, you have teens of your own, you already know better

Enticed by credit card solicitations with low interest rate come-ons, Bragg’s independent-minded son was in credit counseling by the time he was 18. Bragg’s daughter, on the other hand, while still a student, applied for and received a prestige credit line that even some of Bragg’s agency clients are unable to qualify for.

“Same mother, same father, same food, same air” and two very different outcomes, observes Bragg wryly of his children’s money management styles.

Many otherwise more-than-adequate moms and dads – those who’ve mastered subject matter as sensitive as teenage smoking, drinking, and drugs – have found their skill sets sorely lacking when it comes to the topic of money.

Welcome to Survivor: Teen Money…

A sprawling multi-year marathon and obstacle course that pits a tribe of well-intentioned parents, grandparents and other adults against the strong-willed, often perplexing sensibilities of the untamed adolescent mind. The challenge? One of modern family life’s most difficult: teaching teens to handle money responsibly.

I remember writing once that as a society we are more comfortable talking about sex and those other issues than we are about money”

Money for Teens: One Savvy Author’s ‘Idiot’ Advice

February 9th, 2011 by Pamela Yellen | Leave a Comment

Nearly a decade ago, Susan Shelly wrote The Complete Idiot’s Guide to Money For Teens. The paperback was and continues to be one of the best read, most widely recommended texts on the subject.

A lot has changed for and about teens since Idiot’s was originally published in April 2001, as Shelly noted during a recent telephone interview. The changes work both for and against adolescents.

As an example, teens today can do comparison-shopping on the Internet to identify the best brands and prices – a big plus. But the Internet also enables kids to indulge in nearly instantaneous impulse buys: money enters and exits their bank accounts electronically, no wallet required.

Regardless of how teens avail themselves of today’s on-demand financial tools, the core principles of personal finance success – such as consistently saving a little now to accumulate a lot later – remain timeless.

Among Ms. Shelly’s 2011 recommendations:

Managing

To help teens be more thoughtful with their money, make sure they have financial responsibilities. Whether it is paying for their own smart phone or covering the incremental costs of adding them to your auto insurance policy, let teens learn the lessons of paying for at least some of their own consumption. Kids should know how much money they have and where it is.

Spending

Just like adults, Shelly says, some children are better savers than others. But all teens should be encouraged to avoid impulse purchases. Shelly says she would encourage any teen bent on making a significant purchase to wait a week to see if he or she will still want the item as badly. Ask teens to consider whether what they are buying is really worth it?

Earnings

A part-time job and/or the launch of their own entrepreneurial business is helpful. “I think that is very important, especially in times like these, that teens feel they are contributing to their family by being more self-sufficient,” Shelly advises. Ideally, young adults will build their earnings to the point where they no longer need or ask for an allowance.

Investing

It would be wise to assist teens in pooling enough money to manage their own small portfolio of funds to be placed in select savings and investment vehicles.

Instead of buying kids traditional birthday, graduation and special occasion presents or gift cards, parents and other relatives should consider providing cash, stocks or other savings instruments. Having their own financial portfolios will not only help teens accumulate wealth – it will give them the opportunity to learn the dos and don’ts of successful money management.

7 Steps To Set Your Teens On a Lifelong Path to Financial Success

February 9th, 2011 by Pamela Yellen | 5 Comments

Here is a list of 7 steps that you can use to help prepare your teens to be financially successful and responsible adults. Feel free to adapt these suggestions to your individual family dynamics.

teenager mowing lawn — To truly value money, teens need to
earn their own income

1. Start Bank on Yourself policies for your teens (if you have not already) and/or help them purchase their own policy. You can get a referral to a specially trained Bank On Yourself Professional who will work closely with you to customize a plan that’s designed specifically for your family.

2. Share details of your own Bank on Yourself policies with your children and review both your and their policies every six-months. Show them how you are utilizing your policies to predictably retain and grow more of your own money without paying interest or exorbitant fees to banks, brokerage firms and others.

3. Expose your teens to your full family financial picture – including what you earn, what you spend, what you borrow, and how you invest and save. You may wish to have your children participate by writing checks, reconciling accounts and helping to set and monitor your family budget.

4. Put your kids to work. To truly value money, teens need to earn their own income, whether through outside jobs, entrepreneurial ventures or by getting paid for family chores.

5. Don’t forget charity. Encourage your kids to set aside a regular portion of their earnings and income for a good cause, be it church or other worthy nonprofits. Such gifting will be returned to them many times over in terms of the character it builds.

6. Paint a vibrant picture of your adolescent’s fiscal future – one free from the money worries that envelop so many young adults and their parents. Help teens formulate their own vision of what a life of financial self-reliance and freedom will mean for them.

7. Allow kids to make mistakes and even fail when it comes to managing their own finances. Few adults get it right the very first time, either. Remember, we all learn a great deal from our mistakes.

Market Rally? Why you shouldn’t get carried away…

February 3rd, 2011 by Pamela Yellen | 25 Comments

There is something occurring right now that concerns me… and ought to concern you, too. So I urge you to pay close attention to this blog post…

Individual investors are moving into stocks and riskier investments

Since the financial crisis, and until very recently, individual investors (that’s you and me) largely avoided stocks. But now, as the stock market continues on a sharp rise that is already one of the steepest in history, people begin to fear they will miss out. According to a recent article in the Wall Street Journal¹….

Stock-market fever is one of your biggest enemies as an investor… It’s pure instinct. We’re hard-wired to run with a stampeding herd and to seek safety in numbers.”

The article advises that you shouldn’t trust the crowd, because, “they’re usually wrong. Time and time again, studies show the public invests at the wrong time – they get bullish and buy after shares have risen, and then panic and sell after they have fallen.”

Just as they did before the housing bubble burst and just like they did before the dot.com crash. And just like they have done throughout history.

The article notes that, “too many TV market pundits talk like they’re on ESPN. It gives the stock market a phony air of urgency and excitement.” And it reminds us that, “if you’re buying, higher stock prices are bad, not good.”

Wall Street lost more than 40% of our money -TWICE – in the past decade

How can you be sure they’re not about to do it again?

AAII vs. Bank On Yourself: Total Knockout in Round One

January 26th, 2011 by Pamela Yellen | 13 Comments

Last week, I posted the rebuttal I wrote to the American Association of Individual Investors (AAII) review of my best-selling book, which declared the concept “too good to be true.” BOY Boxing Gloves

Since AAII said they would not publish my response or correction of the misinformation contained in their review, I told them I would publish it here and let YOU be the judge of whether AAII was twisting and omitting things… or being fair and unbiased.

The response was swift, surprising and universal. There were so many insightful comments made that I couldn’t pick only three to award prizes to, as was my original plan.

So I picked ten (the winners are listed at the end of this post – check to see if your comment was one that was chosen). And I’ve excerpted from a number of the comments here, so I can share some of the highlights with you.

Jeffrey summarized the thinking of many commenters about AAII this way:

AAII naturally committed the typical strategic blunders essential to the charade proposed by the investment industry (Wall Street) and financial professionals (a.k.a. traders, gamblers, speculators, etc.). Any attempt to allow people an opportunity to truly grow wealth, reduce risk, and prepare for a more stable environment challenges the status quo of buy and lose (commonly referred to as buy and hold) and then industry pundits (AAII) start the negative attacks in order to establish fear of finances and preserve their base of profits. AAII omitted important aspects of your plan, distorted facts of your plan to promote obfuscation, and blatantly twisted all aspects of your plan in order to destroy your credibility.

Thank you for presenting people with an opportunity to actually prepare, plan, and realize a better financial picture.”

Is Bank On Yourself too good to be true?

January 19th, 2011 by Pamela Yellen | 85 Comments

A review of my book, Bank On Yourself, in the December 2010 issue of the American Association of Individual Investors (AAII) Newsletter declared that the concept is “too good to be true.”

The reason given was, “A life insurance policy loan is not truly a loan. Rather, it is an advance that the insurer must eventually pay out. Worse yet… policy loans can erode a life insurance policy over time.” It also pointed to “potential tax liabilities.”

This review brought to mind one of my favorite quotes…

If you’re looking for an excuse, any one will do.”

– Dan Kennedy

So I wrote the editor and explained there was some misinformation in the review, and that I would like an opportunity to correct the record, pointing out that their motto is “Unbiased Investment Education.”

The editor told me to let him know what I think is incorrect, and he “will take a look at it.” I suspected he was just “humoring me,” but gave him the benefit of the doubt. However, when I submitted my rebuttal, he replied that they would not publish it because “there are no factual corrections to be made.”

I informed AAII I would be publishing my rebuttal on this website, and let YOU decide who is taking things out of context, committing sins of omission, and twisting the “facts”… and who is being fair and unbiased. We’ll pick three of the most interesting, insightful and/or humorous comments made on this blog and award the posters their choice of a $25 gift certificate for a restaurant in your area or a personally autographed copy of my “too good to be true” book.

Besides that, there are several points made in my rebuttal that I have not made elsewhere, so you will find value in reading this (I made it a bit more colorful for your reading pleasure)…

The dangers of fuzzy thinking about money

January 12th, 2011 by Pamela Yellen | 7 Comments

It often shocks me to see what passes for “journalism” these days in publications many people put their trust in, like the Wall Street Journal.

A recent article in that publication titled, “Slow and Steady Saving Still Pays,” is a classic example of what happens when you use fuzzy thinking and math… and expect to convince readers of your position.

Sadly, I suspect many readers did lap this article up because, after all, it was published in the Wall Street Journal. They wouldn’t lie to us or lead us astray, would they?!?

I don’t think this article was intentionally written to mislead you. I believe the author has just been as brainwashed by Wall Street as most Americans have been.

check out this article

“The Unrealized Loss Riddle”
for an eye-opening comparison of saving money in a Bank On Yourself policy versus investing in the stock market.

So what ARE the problems with this article?

The Secret to Making Your Financial New Year’s Resolutions Stick – You!

December 21st, 2010 by Pamela Yellen | 8 Comments

By Pamela Yellen and Dean Rotbart

Perhaps this year, finally, you will get your financial house in order. That means roping in spending, slashing debt, maximizing income and choosing investment and savings vehicles that actually deliver what they promise.

Even if you’ve fallen back on your New Year’s Resolutions, it’s not too late to get back on track. Learn how by watching this fascinating interview of Pamela Yellen on Good Day New Mexico

Hardest of all, it means sticking to your New Year’s resolutions beyond Valentine’s Day, past Mother’s Day and July 4^th, all the way through Labor Day, Thanksgiving, and yes, New Year’s Day 2012.

Remember, past failures are no guarantee of future failures! In fact, before they ever succeeded, research shows that most successful New Year’s goal-setters faltered for five consecutive years or even more.

You are far more likely to be successful if your resolve comes from within, instead of being imposed on you by outside forces.

This could be the year that you surprise everyone – perhaps most of all, yourself – by keeping and maintaining your New Year’s resolutions.

For the roughly 45% of us who determinedly set off on January 1^st with a full head of steam, but run out of inspiration before February 14^th, a subset of Americans – about one out of every five – do push ahead and do achieve their stated goals.

Whether the resolution is to lose weight, exercise more, quit smoking, drink less or spend less, for a small percentage of the population, New Year’s Day is the very trigger they require to set off on their final journey towards – or away from – a lifelong pattern of behavior that previously seemed unattainable.

7 Secrets to Get Your Financial House in Order – Permanently

We all have it within us to modify our behavior
Real, permanent change is usually driven by your own desire, rather than by the pressure others exert on you
Have a heart-to-heart talk with yourself. Where are you right now… and where do you want to be?
Enlist the support of one or more allies or a coach to encourage you and help keep you on track
Consider using websites that give incentives – and disincentives – for sticking to or breaking your commitments (such as a GoalPay.com)
Don’t wallow in self-blame when you fail – put aside your emotions and plot a logical pathway back
Don’t set yourself up for failure by insisting on an all-or-nothing change. Learn from the past, realize where you made errors and build on them like stepping-stones

What does it take to be one of the successful few?

The “unrealized loss” riddle

December 8th, 2010 by Pamela Yellen | 14 Comments

Note: this post has been updated in November 2011

-$62,734.06. That’s the “unrealized” loss we’ve had in one of the mutual funds in our retirement account, according to the statement we just received.

A $62,734.06 unrealized loss.

I keep staring at the statement, hoping that number will somehow magically turn positive. After all, we’ve had a nice run-up in the stock market recently, and that mutual fund has one of the best long-term track records of any fund.

What the heck is an unrealized loss, anyway?

I realize I’ve lost a whole bunch of money. And I remember working my butt off to make that money!”

A $62,734 “unrealized loss.” Is that an oxymoron, like “Great Depression,” “small fortune,” “accurate forecast” and “quickly reboot”?

I dunno if it qualifies as an oxymoron. But I do know it’s moronic that we pin our hopes and plans for financial and retirement security on things we can’t predict or count on!

My husband Larry is 61 and theoretically four years away from retirement. He probably won’t retire when he’s 65 because he says he’d get bored. But if we were relying on the conventional wisdom about saving for retirement, it wouldn’t even be an option for him.

Did you know that 40% of retirees were forced to retire sooner than planned, due to health problems, job layoffs and other factors beyond their control?

Of course, none of us want to think that could happen to us… but what would you do if it did?

Another mutual fund in our retirement account shows an $8,012.16 “unrealized” gain.

And there lies the rub: You don’t actually lock in a gain or loss until you sell an investment.

(November 22, 2011 Update: Our most recent retirement account statement shows our “unrealized loss” is virtually unchanged since I wrote this blog post almost a year ago. And looking at the Dow’s ups and downs over the past year makes a day on the roller coasters at Six Flags look tame.)

Unfortunately, studies and history show that most of us are far more successful at locking in our losses than our gains.

Can you tell me what your retirement account will be worth on the day you plan to tap into it? (Not what you hope it will be.) If your answer is “no,” how can you even call it a plan? And what will you do if the market plunges by 50% – again – right before you planned to retire?

Sure-Fire Results: How Old Sensibilities Are Proving a Potent Balm for Modern Personal Finance Ailments

December 1st, 2010 by Pamela Yellen | 13 Comments

The ’10/10/10′ Formula of Savings Rescues Many Overstretched Family Budgets

Executive Summary: Most modern Americans overspend, assume too much debt, and fail to invest wisely for retirement. Tim Austin, a leading proponent of ‘old-fashioned’ spending and savings strategies, recommends a time-tested 10/10/10 financial formula: saving 10% of gross income for the near-term; 10% for the mid-term; and setting aside 10% for the long-term. Austin’s favorite savings tool is specially-designed dividend-paying whole life insurance policies such as those structured by Bank On Yourself’s specially trained and Professionals.

Love_and_death.jpg‎ (233 × 358 pixels, file size: 34 KB, MIME type: image/jpeg)

By Pamela Yellen and Dean Rotbart

Even back in 1975, the year comedian Woody Allen wrote, directed and starred in the movie Love and Death, the perception of whole life insurance as a savings instrument designed for fuddy-duddies and masochists was already commonplace.

There are some things worse than death”

…deadpans the film’s protagonist, Boris Grushenko, played by Allen…

If you’ve ever spent an evening with an insurance salesman, I’m sure you know what I mean”

[Read more…] “Sure-Fire Results: How Old Sensibilities Are Proving a Potent Balm for Modern Personal Finance Ailments”