Money Listens

High school is over, college is next.  Your freshman has her sheets and towels, mini-fridge, panini maker, first aid kit, shower caddy, and about 350 lbs. of “must-have” stuff.She’s registered for classes, signed up for orientation, sent her roommate 500 text messages, and has “class of 2012″ on her Facebook.  (Let’s hope she will graduate in four years.)What else is on the college to-do list?  How about money stuff?  She’s going to be using money in college and needs to tell it where to go and what to do.

1.  Bank Account

Where is she going to bank?  She has a checking account and ATM/Debit Card with a local bank.  She needs to open a checking account at a national bank with a location at home as well as a location within walking/biking distance of college.  Most banks have no-fee student checking accounts.  Find out about ATM fees and overdraft charges.   A parent can be a joint holder in order to regularly transfer an allowance, or in a time of emergency.  Make sure she knows how to balance a checkbook and stuff like how long it takes her paycheck to clear after she deposits it.

2.  Credit Card

She will be bombarded with offers to open credit card accounts.  Make her swear not to do this.  Her ATM/Debit Card will be branded with VISA or MASTERCARD, and will be all she needs.

3.   Paperwork

She needs a filing system with folders and a place to keep them. Go ahead and make some now.  Even if most statements and bills are online, there’s still plenty of paper around.  Especially financial aid forms and notices from the school.  Does she know what types of paper she must keep?  What about receipts and warranties?  She also needs to keep her social security card, passport, test scores, health records, payroll stubs, and important papers somewhere.   And under the bed doesn’t count.  Not only does she need to keep the stuff filed, she needs to fill out the forms herself.  And write the tuition check.  And tell her she gets to fill out her own tax return next year.

4.  Spending Plan

She needs a plan for how much money she can spend on eating out, recreation, clothes, Starbucks, gifts.  You get the idea.  If this sounds like a budget,  a rose by any other name. . .   How much will the parents contribute and how much will she be responsible for?  And she needs to keep track of her spending.  Quicken or a spiral notebook will get the job done.  She needs to know that you will “audit her books” at Christmas break.  And you don’t mean textbooks.

5.  Maintance

She needs to know how to take care of her stuff.  If she has a car, what will she be responsible for?  She needs to know how to run the anti-virus programs and backup the data on her computer.  She needs to know to keep passwords safe.  And do laundry.  Ruining clothes is expensive.  She needs to pay her bills on time.

6.  Student Loans

If she is taking out loans she needs to understand the terms, especially what the repayment amount will be.  She must be careful to keep up with the forms and limit her loans to the bare minimum necessary for school.  Loans can get out of hand in a hurry.  She can check out this video on how college students struggle with money management.  http://www.youtube.com/watch?v=JOt3Apl7qBA

7.  Privacy

Does she know not to give out her account numbers or passwords?  Does she have a basic idea about identity theft and scams?  Tell her not to lend money to friends.  And don’t borrow any, either.

8.  Back Up

Tell her you’ll be there for any problems.  Money listens and parents can listen, too.

Investing has its own rules.  When we try to play investing by the rules we’ve always used to run our lives, it doesn’t work.  One of the reasons we’re lousy investors is because we follow the rule “You get what you pay for.”  When you’re buying a car, a computer, or dark chocolate, you generally do get what you pay for.  The more you pay, the better the product.  But not when it comes to investments. You can’t tell whether a financial product is the best one just because it costs more.  In fact, often the opposite is true.

Another maxim we live by is “If you don’t know how to do something, hire an expert.”  In practice, it’s much harder than it sounds.  Just who is an expert?  We’ve all had trouble finding a car mechanic or a plumber we can trust and depend on. How in the world can we find a financial planner?  (Be on the lookout for a future post on how to find a financial planner.)

Listen to your gut.  Trust your instincts. You usually know what is right.  Sure you do.  If you’re playing Clue, you might have a hunch that it’s Colonel Mustard in the Lounge with the Wrench.  So what if you’re wrong.  You’re out of the game and go get another Pepsi.  Are you going to risk your life savings on a hunch?  Okay, I think most of us have this one down.  We don’t rely on hunches.  We don’t guess.  We actually do some research and make the best decision we can.

If Dogbert recommends Index Funds, what are you waiting for?

These cartoons are from Scott Adams’ Dilbert website.  Check it out at www.dilbert.com.  And please don’t mention the words “copyright infringement.”

A recent article in USA Today discussed how seniors were getting hammered by rising prices.  It’s not your imagination; prices have been going up.  For the three months ending May 31, the annualized inflation rate for food was 6%, and for energy, inflation exceeded 28%.  Food and gasoline are the worst, but prices in general rose at a 4.9.% rate.

When you’re retired and living mainly on Social Security, it’s especially tough.  An AARP survey found that 59% of seniors have trouble paying for food, gasoline, and medical care.  If you’re like me you find that hard to believe. You hear mostly about retirees playing golf, going on cruises, and generally enjoying the good life.  You see them walking in the malls and eating at Olive Garden.  41% can afford to do that.  The 56% who can’t will stay at home to save the gas for doctors’ visits.  Are you and/or your parents going to be in the “having trouble paying for” group?

It sure looks that way.  The median balance in 401(k)s and IRAs for those approaching retirement age is $60,000.  That’s not going to go very far.  Seniors don’t just need help crossing the street.  They need help preparing for the future.  This is especially critical for women. Women live longer and are more often alone in old age, and they are more likely to be adversely affected by rising prices.  Forty percent of elderly women  receive more than 90% of their income from Social Security.

There is probably someone in your life that could use help crossing into retirement.