Credits and Debits: Understanding Practical Money Management

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GUEST POST: Credits and Debits: Understanding Practical Money Management

It’s commonly said and assumed that money makes the world go round. Without money, we wouldn’t be able to do many things we take for granted today, including buying or selling goods. It is very important to properly understand how money matters work and how to handle our personal finances.

Unfortunately, too many consumers today have never received much in the way of formal education about handling personal accounts. Without the proper knowledge, it’s easy to fall into risky financial habits, such as overspending and going into debt.

So we’ve compiled a directory of resources, providing information about money and personal finances. By taking the time to learn about these issues early on, you can continue to practice good financial practices as an adult as well.

What is Money?

Although money is a physical item, it is more importantly symbolic.

Money came about in ancient civilizations. At first people would simply trade or barter one good for another. Over time, they saw that it was not very convenient to do so. For example, it might not be very convenient to trade a beautiful gold ring for twenty kilos of meat. Instead, people developed forms of money to symbolize the value of goods. Today we don’t only use notes and coins, but we also use checks, credit cards, debit cards, online banking, and other online payment services as methods of paying for items.

Spending and Saving Money

There is a fine balance between spending and saving money. It is never nice to come to the realization that you have completely run out of money. To avoid this, make it a general rule to never spend more than you have. Furthermore, by saving a small portion of your earnings each time, you can use this amount as emergency money or to save up for something big.

Tracking your spending, earning and savings on a budget sheet is an excellent way to see where your money is going. You might realize that you have been spending most of your money on clothes when you really want to buy a video game!

Debit Cards: Pros and Cons

A debit card is a bit like a virtual wallet. Imagine that you have $100. You might choose to keep that amount in notes in your pocket, or you could deposit it in the bank. Now suppose you go to the music store and buy something for $5. If you pay for it by swiping your debit card, the bank removes $5 from your bank account and transfers it to the music store.

The good thing about a debit card is that it ensures that you only spend as much as you have, and no more. However, beware of extra fees that you might incur by withdrawing money from an ATM of another bank, or by withdrawing more money than you actually have!

Credit Cards: Pros and Cons

A credit card might be seen as the complete opposite of a debit card. It allows you pay for items with money that you do not have! Essentially, the bank gives you a loan but expects you to pay it back. For example, you might need to buy a new bike that costs $500. If you don’t have enough money, you might use a credit card to buy it. Keep in mind that it is not a free loan. The bank will charge you interest for each day that part of the loan is unpaid.

It is best to only use your credit card when you already have the money to pay off your purchases, or if you are fully certain that you can pay it off in regular installments. Interest is one of the biggest drawbacks of using a credit card. In the case of the bike, by using a credit card, the total cost might be $520 if you include the interest. However, credit cards are also convenient if you can keep the debt in check.

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Making Money with Lemons

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The old-fashioned lemonade stand is still a great way to teach children the concept of earning money. It’s both simple and inexpensive. Whether it’s in your front yard, on a busy corner, or at your local Earth Day fair, your children will learn valuable lessons.

Build it. Lemonade stands can be simple or more involved.  For a slotted design that can be reused and stored, check out http://www.thisoldhouse.com/toh/static/pdf/family-projects/lemonade-stand.pdf. The old standbys: either a card table or a sturdy cardboard box. Whichever you choose, it’ll have to hold a pitcher for lemonade and a sign such as “Lemonade for Sale”. Make the sign large enough to see from a distance. What is price per cup?

Make Lemonade.

See below for winning lemonade recipe, or use your favorite mix.  Maybe you’d like to offer a selection of lemonades? Or supplement lemonade with a home baked goodie? Make sure you add your selection(s) and prices to your signs.

Supplies – Of course you’ll need lots of basic supplies:  pitcher, paper or plastic cups, straws, ice, spoon for stirring, napkins or paper towels, plastic wrap or lid for the pitcher and a trash can. You’ll also need a small cash box with change (bills and coins). Add a simple, but colorful table cloth. You’ll need markers and large sheet of paper to write your sign.  For comfort, bring a few folding chairs, and perhaps your favorite music.  Have a basket of lemons for display or to cut as slices.

Attract customers –Put up flyers in the neighborhood; text or email friends and families.

Wave, smile, be courteous, but be safe.  Keep your hands and your stand clean. Your customers will want to know their lemonade is free of germs.

Lessons learned – Kids can have fun while serving their community and making money.  They’ll practice politeness and reinforce it by saying “please” and “thank you”. They’ll learn about the occasional hard sell when having to explain what they’re doing, how they made their lemonade or why they’re selling. Or they’ll learn about the “no sale” – walkers or drivers who pretend not to notice them. Children will learn to safeguard their money, count change, and of course, count their profits.

Praise your children and discuss what they will do with their earnings. Include a discussion on cost versus sales. How much did the supplies cost? How much time, money and effort went into making the lemonade and the stand? Did they have enough supplies? And of course, did they make a profit? What will they do better next time?

 

Recipe for Perfect Lemonade, by www.simplyrecipes.com

Prep time:  10 minutes

Ingredients:

1 cup sugar (can reduce to ¾ cup)

1 cup water (for the simple syrup)

1 cup lemon juice (from 4-6 lemons)

3 to 4 cups cold water (to dilute)

Method:

Make simple syrup by heating the sugar and water in a small saucepan until the sugar is dissolved completely.

While the sugar is dissolving, use a juicer to extract the juice from 4 to 6 lemons, enough for one cup of juice.

Add the juice and the sugar water to a pitcher. Add 3 to 4 cups of cold water, more of less to the desired strength. Refrigerate 30 to 40 minutes. If the lemonade is a little sweet for your taste, add a little more straight lemon juice to it.

Serve with ice, sliced lemons.

Yield:  Serves 6.

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The Value of Loose Change

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At the end of the day, you empty your pockets of all of the loose change.  Perhaps you throw it on the dresser, or you have a piggy bank or just an old jar. Perhaps it’s rattling at the bottom of your purse or weighing down your laptop bag. Did you ever consider the value of change?

Learning opportunities

In a short amount of time you can amass a substantial amount of change.  Coins are fascinating to children. It’s a terrific opportunity to teach them about money.

Sort. Have your children sort the coins into pennies, nickels, dimes and quarters. Distinguishing change is an important skill that can be taught as early as 4 years old.

Note the sizes, weights, and edges on the coins. Take a look at the front image and the back. What differentiates the coins? Coins are composed of different metal compositions, have differing weights and thickness, and have plain or reeded (ribbed) edges.  Great topics for discussion.

Start a Collection. In 1999 the US Mint began its 50 State Quarters Program to honor the nation’s states when they were ratified or admitted into the Union. Each quarter was produced for 10 weeks during a 10-year timeframe, and then the designs were retired. Fun Fact:  Did you know that the five-cent coins minted from 1942-1945 aren’t really nickels? They don’t have any nickel in them. During the WWII years, all nickel was reserved for the war effort. Coins during that time were made from copper, silver and manganese.

Counting and swapping. Whether your child is a seasoned counter, learning to count by 5’s, 10’s and 25’s, or just starting at 1’s, there is plenty of opportunity to practice. Practice adding coins, taking away, and swapping coins. How can I make change for $0.25? $0.50? What does $1.00 look in pennies vs. dimes?

Full Piggy

Finally, take it to your bank. Many banks, but not all, have a free coin-exchange machine that you dump the coins into directly. It’s a great adventure for the kids, and you can make a game of it:  take a guess – how much change have we saved?  (Some banks require you to roll your coins, but they’ll provide the wrappers. Supermarkets frequently have Coinstar machines, but they charge a fee. Call your bank first.)

What will you do with your small fortune? Save it? Spend it? How will you decide?

More information on coins can be found at www.usmint.gov.

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April is National Financial Literacy Month!

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The importance of teaching financial education to our children has become more important than ever.  A nationwide push has begun to prevent future generations from making critical money mistakes that could haunt them long after they graduate from college.  Studies have shown that financial skills start at home. But what can families do at home to create ‘teachable moments’ that illustrate skills like budgeting,  balancing a checkbook,  checking a savings account balance online,  or understanding the difference between a debit card and a credit card? Here are some tips from our DoughMain experts to get your started…

Games That Teach About Finances:  Kids today love technology, so why not embrace it. There has been a great push toward game-based learning — using what children love, games, to teach them what they need to know for their future. Take advantage of free online educational games from DoughMain like Sand Dollar City or The Fun Vault, that teach your kids about money in a fun and interactive way they will enjoy.  These games and more are available at www.doughmain.com/

Sharing The Monthly Bills:  Most children don’t have monthly bills. Their parents pay for the utilities, cable TV, internet service, and cell phones. It is still important that we teach them about the importance of monthly expenses. Consider having them pay a small amount every month that goes towards each of the monthly bills.  It can be a small enough amount that it is easy for them to pay from their allowance, even as small as 25 cents per utility, depending on the age of the child.  The point is for them to get familiar with setting aside money to cover basic monthly fees.  For older children with a cell phone you might have them pay a more direct portion of that bill and warn of consequences if the monthly payment isn’t made on time.  This exercise could also be used to explain income taxes and paying out a portion of a children’s “paycheck” (aka allowance) toward running the government (aka their household).

Encourage Children To Save Through Family “401K” Program: To kids, saving often seems like an obstacle. To encourage smart saving habits, create a matched family savings plan similar to a 401K offered at many jobs, except the parents act as the company and match their child’s savings. This program will foster good habits throughout the year and teach children how a savings plans works for when they, too, enter the working world.

Create A Shopping Budget: Before heading out to the grocery store, sit down with your children and establish a budget. Explain that there are the absolute required items – and then there are desired items.  Have them keep track of the running total as the required items are selected and then have them participate in shopping for the desired items to determine which ones remain within the budget.  When there are items that they want but will exceed the budget – have them make some of the decisions on which to leave out.

Payday Advance: To a child, their allowance is like a paycheck. If your child needs extra money to make a special purchases consider giving them an advance on their allowance. Before you do this, explain the terms of this “payday advance”. Explain the tradeoff costs of the advance and that they will not be receiving their allowance next pay period or that they will have to pay the loan back with interest.

Learning From Mistakes: Despite our best efforts to teach our children about good financial habits it is also important to let mistakes happen. Mistakes offer valuable learning opportunities and it is best that they are made on a small scale while children are young rather than in the future. For example, regardless of how many times you tell your child not to make impulse buys, sometimes it is better to let them make the unnecessary purchase and see the negative impact of their finances and budget so that they avoid doing it again in the future.

Tackle Advertising: We’ve just gone through the holiday season with a blitz of  advertising, including ads promoting big discounts. While watching ads on television help your children understand what the goal of the ad is and what action the company is trying to take. Explain the benefits and limitations of various promotions and help them to avoid overspending simply because something is presented as a good deal. 

Gift Cards: Gift cards have become very popular gifts. When a child receives a gift card explain how it is a form of currency and it is important to track balances, expiration dates, and keep cards in a safe place.

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America Saves Week is Coming Up!

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This America Saves Week: Set a Goal. Make a Plan. Save Automatically.

American Saves Week 2013 starts on February 25, 2013.

 By Katie Bryan, America Saves Communications Manager.
The theme for America Saves Week 2013 is more than just a theme; it’s is the essence of a sound approach to savings, designed to help individuals take financial action. Set a Goal. Make a Plan. Save Automatically. Knowing what you want to save for, how to achieve it, and then making the savings process automatic will allow you to reach your savings goal.

Set a Goal

You can save more by having a goal in mind. Visualizing what you want to save for gives your savings a purpose. You may be tempted to withdraw from your savings if it has no purpose. But once you have a goal in place, you know that taking money out of your savings is taking away from that ultimate goal. So what are you saving for? An emergency fund, a home, retirement, a car?

Make a Plan

Once you have your goal in place, make a plan for how you are going to save. To start, cut down on your spending and reduce high-cost debt. Next, keep track of what you spend and make a budget. Once you know where your money is going each month, you can cut down on unneeded spending and save the difference.

Don’t forget to keep your savings safe, secure, and growing. Banks, credit unions, and even the government offer a variety of financial products that can help you save.

Save Automatically

It can be hard to put aside money for savings. But there is an easy way to save money without ever missing it. Once you know how much you can save, make saving automatic. Many employers allow you to divide your paycheck into different accounts through direct deposit. Take advantage by putting part of your pay into a savings account. If you get paid in cash, take a small amount to the bank to deposit into a savings account each week.

Take the America Saves Pledge (or re-pledge) today to set your savings goal and make a plan to save. You can also follow America Saves on Facebook and Twitter.

America Saves Week is coordinated by America Saves and the American Savings Education Council. Started in 2007, the Week is an annual opportunity for organizations to promote good savings behavior and a chance for individuals to assess their own saving status

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Infographic: Ten Common Income Tax Snafus

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What are some of the most common mistakes people make when filing tax returns? Check out the graphic from Olson Tax Consulting below:

Common income tax mistakes infographic

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Parent Resolutions You Can Stick To

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By now, 2013 is in full swing. Our resolutions are set, some are even broken. It’s not too late to take some time to learn from last year- the good, the bad, and what still needs to be accomplished. Sure, there are the generic resolutions we all make like losing weight, eating healthier, kicking one of our not so glamorous habits. This year why not make a second resolution… a parent resolution to help our whole family have a more successful 2013. Here are some ideas to get you started:

Hope for the best, prepare for the worst… Create an Emergency Fund.

The New Year is bound to be full of surprises. As a parent, it is your responsibility to be prepared for whatever arises and to take care of your children both physically, emotionally, and financially. If you haven’t already, set aside a portion of your income each month so that you are prepared for any unforeseen events in the upcoming year. Try to keep enough for sixth months of expenses in your fund. An easy way to do this is to set up automated savings.

Avoid the burnout… Stop overscheduling

Do you feel like you are running non-stop? Are your kids scheduled from the moment they wake up until they go to bed at night? As parents, we want what is best for kids and it is often hard to say no to adding another extracurricular activity to their already impressive list. This year, try to find a balance between letting your kids enjoy every activity and letting them have free time to explore new hobbies and interests. It will also help you avoided burning out from the run around of all scheduling, driving and planning these busy schedules create for parents.

Make Family Time a Priority

With the flood of commitments that come with running a family it is harder and harder to spend time together. This year, resolve to spend more time as a family. Whether it is a weekly game night or something as simple as dinner together, studies have shown that family time contributes to more successful children.

Invest in Education Early

The price of college admissions is on the rise, so it’s important to start planning for your child’s education as soon as possible. Consider opening a 529 to grow your education fund. Even if you are only putting away a small amount each month it will build up over time.

Discuss Your Family Finances More Often

This year, give your budget a tune up more often. By checking in on your finances more often you will see trends and potential problems early on. This will also give you the opportunity to discuss money with your children on an ongoing basis throughout the year.

Don’t forget to give

While there is a distinct focus on giving around the holidays, we need to emphasize that giving is a year round process and that regardless of how tough our situations are it is critical that we continue to give what we can to those less fortunate. Consider setting up a giving fund for the family. Set up a jar for every family member’s loose change. When the jar is full discuss which cause you would like to support and make the donation. This will show that even the smallest donations can add up and regardless of our circumstances we can help those in need.

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12 Tips for Teaching Financial Skills to Children

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  1. Create a Budget: Before heading out to the store, sit down with your children and establish a budget. Explain that there is a total budget for the family and that a certain amount is to be spent on each family member. Help your child track their purchases to make sure they are staying within their predetermined budget.
  2. Sales Tax: Understanding sales tax is an important part of financial planning and teaching money skills. When your child makes a purchase, they have to consider the TOTAL cost of the item, including the sales tax. That $25 toy could really cost $27 when 8% sales tax is added. While that may not seem like much, to a child who budgets and saves but can’t afford the sales tax they may get frustrated. Use holiday shopping as an opportunity to teach what sales tax is and how to calculate it.
  3. Teach Opportunity Costs: While at the store with your child teach them to prioritize their purchases. Explain that by buying one thing, they will give up the opportunity to purchase another because of the limited resources available to them. This does not need to be a negative discussion but rather a discussion about the importance of decision making the impact of impulse buys on their budget.
  4. Paying Bills:  Most children don’t have monthly bills. Their parents pay for the utilities and cell phones. It is still important that we teach them about the importance of monthly expenses. Go through your monthly cell phone bill with your child. Pull out how much your child’s plan is worth and have the child pay you each month for the bill. If they’re late, the service will get cut off. For children asking for gifts that require monthly plans, have them calculate the total price of the gift by calculating the monthly charges. For younger children, have them give back a small portion of their allowance to cover expenses like cable and instill the idea of bill paying.
  5. Distinguish Wants vs. Needs: During the holiday season it is easy for children to get carried away with their holiday wish list. While it is okay for children to put want items on their list, it is just as crucial that you encourage them to include the things that they need as well. Sit with your child and discuss the differences between wants and need. Have them prioritize their lists based on what they want and what they actually need.
  6. Tackle Advertising: With the holiday season comes the overload of advertising — especially ads geared toward children. Advertising plays a huge role in our kids’ wish lists this time of year. While watching ads on the television help your children understand what the goal of the ad is and what action the company is trying to take. Explain the benefits and limitations of various promotions and help them to avoid overspending simply because something is a good deal.
  7. Gift Cards: Gift cards are becoming an increasingly popular holiday gift. Take this opportunity to explain to your children that gift cards are a form of currency and it is important to track balances and keep cards in a safe place.
  8. Talk about money as you go: Find moments during this holiday shopping season to teach your kids important lessons. To kids, an ATM may seem like a machine that gives out money. Next time you go to the ATM with your kids, explain how an ATM works and where the money comes from. Or, as you do any holiday shopping with your kids in tow, explain how tax is added to our purchases. Or if you pay for a purchase using a credit card, explain the difference from using cash, and the idea of paying interest. These little conversations go a long way in your children’s financial future.
  9. Encourage children to save by offering a matching program: To kids, saving often seems like an obstacle. To encourage smart saving habits, create a matched family savings plan similar to a 401K offered at many jobs, except the parents act as the company and match their child’s savings. This program will foster good habits throughout the year and teach children how a savings plans works for when they, too, enter the working world.
  10. Payday Advance: To a child, their allowance is like a paycheck. If your child needs extra money to make purchases around the holiday consider giving them an advance on their allowance. Before you do this, explain the terms of this “payday advance”. Explain the tradeoff costs of the advance and that they will not be receiving their allowance next pay period or that they will have to pay the loan back with interest.
  11. Importance of Giving: Donate old toys and clothes to charity. The holidays left us all with a surplus of toys and clothes in our homes. While your children are off from school have them go through their toys and clothes and get rid of things they no longer need to make room for their holiday gifts. Donate these items to charity to teach the importance of year-round giving to your children. It will also make more space in your home.
  12. Learning from Mistakes: Despite our best efforts to teach our children about good financial habits it is equally important to let mistakes happen. Mistakes are valuable learning opportunities and it is best that they are made on a small scale while children are young rather than in the future. For example, regardless of how many times you tell your child not to make impulse buys, sometimes it is better to let them make the unnecessary purchase and see the negative impact of their finances and budget so that they avoid doing it again in the future.
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The Holidays Are Almost Here…

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It’s hard to believe that the holiday season is already here. Before we get caught up in Black Friday bargains and gift giving it is important to take advantage of the chances this time of year provides us with to teach our children about finances. Using everyday experiences is a great way to teach kids about money year round. During this special time of year there are added opportunities, enthusiasm, and unique lessons that our families can benefit from. Teaching kids about money during the holiday season can be a fun activity for parents and children alike. Kids are always eager to make their holiday lists or go shopping for presents so they will be especially attentive when you sneak in little financial literacy lessons.

Before the shopping season begins sit down with your children and establish a budget. Not only will this keep you and your child from overspending, it will also allow you to explain the idea of opportunity costs. Explain to your child that by buying one thing, they will give up the opportunity to purchase another because of the limited resources available to them. This does not need to be a negative discussion but rather a discussion about the importance of decision making the impact of impulse buys.

Wants vs. Needs is an important topic to instill in our children. During the holiday season it is okay for children to put want items on their list. It is just as crucial that you encourage them to think of the things that they need as well and put those on the list too. Sit with your child and discuss the differences between wants and need. Have them prioritize their lists based on what they want and what they actually need.

Help your children to understand and evaluate advertising claims. While watching ads on the television help your children understand what the goal of the ad is and what action the company is trying to take. Explain the benefits and limitations of various promotions and help them to avoid overspending simply because something is a good deal.

The shopping process provides tons of opportunities to teach our children about financial planning and decision making. There are other practical lessons they can learn simply by watching us check out at the store. What types of payments are available? What is layaway? What is the difference between debit and credit? All of these can be quick conversation that will greatly benefit our children.

This year when shopping for the holidays get your child more than just gifts, provide them with learning experiences that will benefit them for years to come.

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Teaching the Importance of Volunteerism

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Part of raising a well-rounded child is exposing them to a variety of experiences and lifestyle situations outside of their own. A good way to do this is through charitable giving and volunteerism. It is important to incorporate helping others into you family life and make it a habit early on as it is a critical part of financial education and child development.

As a parent you should discuss the different opportunities to help others with your children be it donations of time, money, or goods to those in need. Teaching the importance of charity will help your children look beyond their own wants and needs.

One way to incorporate charity and volunteerism into your child’s life is to become a charitable family. Not only does this incorporates these actions into your child’s life, but also provides a common goal within the family and the opportunity to spend quality time together. Volunteering together strengthens family bonds and emphasize that happiness is not dependent on what we possess but rather experiences and the opportunity to give to others. Volunteering as a family provides a break from busy schedules and shoes that giving back is important enough that all members of the family should be involved.  As parents, it is your responsibility to provide volunteer options to your family and spark their interest in these activities.

The activities that your family participates in can vary greatly. Through volunteerism your kids can learn about the issues that are of interest to them. Volunteer at a variety of organizations until one strikes a chord with your child. Charities that align with your child’s interests will make them more inclined to volunteer their time. For example, a child who loves animals may want to volunteer at an animal shelter. Try getting involved in your community by maintaining local trails and parks. If you are looking for volunteer opportunities for your family, there are many resources available to you- VolunteerMatch (www.volunteermatch.org) provides a database of volunteer activities. You can search by zip code, activity, or age group.

Volunteering has added benefits for your child. It gives them the ability to help others and gives them a better perspective on life. Exposing them to other who are in need will quickly teach them how lucky they are and give them a greater appreciation of the things in their life.

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