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The Money Messenger -- Saving and Investing in the Future
March 05, 2010

Hi,

Welcome to Issue #028 of The Money Messenger!

The Money Messenger brings you the latest on your kids and money.

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The Money Messenger


In This Issue

March is here - the traditional start to spring - even if that doesn't come until the end of the month. While you might still be working on last month's newsletter topics related to kids' and teens' spring chores or getting a head start on teen summer jobs, you might be ready for something new. That's where this month's articles on saving and investing can help.

Teaching kids of all ages about saving and investing is an important part of their money education. Whether they are just starting with their first savings account or playing the Stock Market Game at school, all kids can benefit from learning about saving and growing money in addition to earning and spending it. It can even be a great way for the family to learn together. And it doesn't need to be overwhelming or overly confusing!

A reader's question on how to make investing fun for all different ages of kids - especially when you have a 5 year old and a 14 year old in the family

Helpful links and resources

What's new and what's next?


Note from Jennifer

Who would have thought that I'd be so happy to hear a forecast of 40 degrees? Wow - it seems like winter has been really long. It probably feels that way for many people. When that sunshine does hit long enough to melt all the snow, everyone wants to head outside. I can't wait.

Until then, you might want to think about whether there are items on your list for 2010 that you wanted to check into for you and your family's financial education. Was one of those to save more or start investing? Saving money is one of the top three resolutions each year. It can be hard - there are always plenty of things waiting to be paid. Putting saving and investing, no matter how small you start, at the top of your list can pay dividends (literally) for years to come. Plus, it gives kids a great head start on their own financial literacy.

The key? Start slowly and focus on one area at a time. Don't try to master CDs, mutual funds, company stocks and corporate bonds all at one time. That will be enough to make your head spin or your eyes glaze over or both. Be sure to check out not only the articles but also this month's resources section for even more ways to get started. You're sure to find one that will work for you and your family.


Feature Article
What Is Investing Anyway?
Talking to Your Kids About Saving and Investing

When you start talking to your kids about saving money, it can be a challenge to try to explain the concept of money personality of a saver, are more inclined to spend the money they earn through chores, an allowance or receive through gifts. The sooner you can start, though, the easier it can be as the amount of money they have to spend - and save - grows.

But what happens after you and the kids have mastered the basics of saving money? It may be time to start thinking about investing. That leads to its own set of challenges.

First, what is investing? Simply put, investing is the process of making your money grow or appreciate over time. Unlike simple savings accounts which usually serve as a way to meet short term goals, investing is a way to meet long-term goals such as college tuition, vacation or retirement. Generally, money that gets invested doesn't need to be touched for at least five years.

Second, why would kids want to invest? It can be easier for adults to understand why investing is a good idea. They are more familiar with longer time frames, and the price tags that come with the major things in life like college and retirement. It's not as easy for kids who can struggle with how far away the end of the school year might seem let alone planning for college. That means that you may need to take a different approach.

Kids and teens want to know what's really in it for them. A great way to do this is by showing them how even a small amount of money can grow over time through investing. The same calculators that can show how compound interest works on basics savings accounts can also show how investing can yield big results. You can find a variety of financial calculators at mycalculators.com including one for savings and investing.

Third, how can you get them started? Once everyone agrees that investing is the right next step, figuring out how to move forward can be almost overwhelming. Here's where some initial studying can help. Learning some investment basics - beyond rates of return - can make a big difference in staying focused and not get weighed down by too much information.

Learning the basics can be done through a number of great books including some in the "Yes, You Can..." series as well as online resources such as the Motley Fool or the website of Kiplinger Personal Finance magazine. While you are doing that, you can also consider starting off slowly with a variety of products that seem more like savings accounts than investments. These include:

  • Certificates of deposit. While bank certificates of deposit may not seem like "real" investing, they can be a good way to have kids and teens learn about comparing rates and getting comfortable with having their money "locked up" for a period of time. Plus, with the FDIC insurance that accompanies them, it can be a lower risk way to get started
  • Money market accounts. Another low risk option that is federally insured is a money market account offered by banks.
  • Money market (mutual) funds can be offered by both banks and brokerages but are not insured. When these are from a bank, it can be confusing because they might also offer a money market account.

Taking that first step can be scary but also very rewarding. Learning about saving and investing in their younger years can help kids and teens get a head start on a lifetime of solid financial footing. That can make taking that leap now a little less frightening.


Feature Article
Easy, Low-Cost Ways to Start Investing

My kids think those E-Trade commercials with that baby are hilarious. They are missing that the ad wants you to believe that E-Trade makes investing so easy a baby could do it; they are in it for the entertainment value. And, hey, that baby is cute and funny.

But is E-Trade a good option for beginners? Are there other options?

If your family is ready to start investing in stocks, bonds or mutual funds, you will likely need a brokerage account. You have several options for doing that, though, so be sure to look at each one and pick one (or two) that seem to fit. Here are the most common:

  • Online discount brokers offer lots of services for the do-it-yourself investor. That includes a variety of research options (some free, some not) as well as being able to buy and sell through their website. (If you can order a book on Amazon or win an ebay auction, you can buy stock on your own through a website. It's that easy.) There are often fees charged but they are much lower than if you were paying a live person to take your order and place it in the market. These brokers include E-Trade, Scottrade, TD Ameritrade and Schwab. Fidelity and Vanguard haven't typically been thought of as discount brokers but they offer some services that would fit into this category, so they are worth checking out as well.
  • Full-service brokers offer many of the same services as the DIY ones but they provide an actual human broker who charges a fee for the services they perform. That usually makes this option more expensive than the first purely based on the fact that you pay for the human interaction. Brokers can provide valuable services, though, so be sure you know what you will be getting for you money (you can think of this similar to full-service gas stations and self-service ones). If you get a high amount of value for your fees, then the service will more than pay for itself and actually be lower cost in the end.
  • Dividend reinvestment plans (DRIPs) used to be more popular before the rise in online discount brokers gave access to a wide array of stocks. DRIPs are offered by about 1,000 companies and closed-end funds. They allow current shareholders to purchase stock directly from the company, bypassing the broker and brokerage commissions. Investors purchase shares with dividends that the company reinvests for them in additional shares. Most DRIPs also permit investors to make voluntary cash payments directly into the plans to purchase shares initially so there is no broker involvement (discount or otherwise). There are some complexities to this so if you want to learn more, this DRIP Investor website article is a great place to start.

As you can see, there are plenty of options to start investing on your own. Each of these has their pros and cons. Focus on finding one that matches your style. Don't be afraid to ask questions if you are looking at a website and don't understand how that broker works. They are usually more than willing to help customers (or would-be customers). And if not? That's a good sign that you probably don't want to do business with them anyway.



Ask the Editor!

Here's where I answer your questions. John wants to get his kids and family started on the investing path - or at least the investment education path. Ideally, he'd like to do this as a family so they can all learn together. The issue? The kids are 9 years apart in age with one being 5 and the other 14. How can a family learn investing together with these age differences? Here's the advice:

It's great to have these types of challenges to deal with as a family although it can also be frustrating. Age differences can mean that the younger kids don't understand the things that keep the teens interested. Or, that teens get bored while they watch younger kids learn the simpler skills. Trying to manage these issues can make you want to throw your hands up!

One of the best ways to manage this can be to find activities that have a number of different tasks to be done or skills that are needed. Often, each family member can find a role that they can fill better than someone else. They get to play to their strongest skill while other family members get the chance to do the same. When it comes to investing, this might be a little trickier but it's still doable. Here are some ideas to consider:

  • Take a family trip to the bookstore or library to look for books on investing. Choose one or two that everyone agrees on and take it home. Make it a family reading project if you can. If the teenager in your life isn't so much into that anymore, they can read a chapter and then provide a summary to the family over dinner. This is a low-cost, low-risk way to start learning that can also help you figure out what style of investing you might be most comfortable with. Alternatively, each persoin can choose a book that is geared more toward them, finding a book for kids for the 5 year old and one on teen investing for the 14 year old.
  • Spend an evening as a family surfing the web. There are so many sites that are devoted to teaching beginning investors how to get started as well as a number of online brokers. Take at least one evening to do some initial research. Which sites did you like and find easy to use? Which ones were really confusing? Even if you are not ready to start investing, this research can be a great way to start developing your list of go-to investing resources.
  • Spend a day at the mall checking out stores and products. Some of the best investment ideas can come from watching the popular items (as long as they aren't too trendy and stores. Have each person contribute at least one product and one store to a list for further research later. This could range from Nike to McDonald's to Apple to anything in between.
Plus, here are a couple of ideas mentioned in the last newsletter:
  • Play a stock market simulation game as a family. Even if you don't have all the bells and whistles that are part of the official Stock Market Game, you can still start with a pretend pile of money ($10,000 is a good amount) either in total or for each person. Then each week, you can research investment options, buy and sell stocks and track your results. This is definitely for kids who are 10 or older although even younger kids can be part of a family team.
  • Create a family investment club. When you are ready to start dealing with real money, a great way to learn about investing with real money is to set up an investment club with your family, including extended members or in the neighborhood. The Motley Fool's Investment Club information is a great place to get started.

As you look through these ideas, you may even come up with a few of your own. Share them with me at jennifer@money-and-kids.com or through the contact form here.



Useful Resources for You

While money-and-kids.com strives to provide all the information you need to help educate your kids, teens and family on money matters, there are other great resources to help you. This newer section of the newsletter highlights those that I've found that provide solid, understandable and usable information.

  • YouTube.com Who would have thought that the home of funny videos could be educational too? While I like some of the great cooking demos, there are also some very helpful videos on financial education. Check out financial literacy information from Ben Franklin and financial education tips for parents
  • SpendLessTV.com is another video site that offers a variety of information on - you guessed it - spending less. Take a peek at Teaching Kids Money Management and a $450,000 cup of latte!
  • It's tax season! TurboTax offers free filing for certain returns. This can be a great way for teens with their first job to file (if they need to) at little or no cost. TurboTax is so easy to navigate they can probably even do it themselves! Another option is to use the IRS official website which also has some free filing options.
  • Walletpop.com is a great all-around money blog which features a variety of articles every day that cover nearly the entire range of personal finance. I like to check in once a week or so to see what they have going on - which usually includes finding some great online coupons for retailers.



What's New?

Be sure to check out the latest blog posts at the site. With a new post nearly every day, there are lots of quick bits of information that might be just what you need.



Coming soon...the next issue of The Money Messenger

April showers bring May flowers...and Financial Literacy Month! Next month's issue will focus on various topics related to financial literacy and what it means to kids, teens and families. If you have questions you'd like to see addressed for that issue, just use the Contact Form or email me at jennifer@money-and-kids.com.

Talk to you soon!



Comments or suggestions?

If you have any comments or suggestions for future newsletters, please let me know. I want to be sure that this newsletter meets your needs. Feel free to provide your comments using this contact form.


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