Helping kids and others learn about money management

joyfulguyApril 15, 2007

I wrote a thread here a while ago that deals with this topic, but much less explicitly so, titled "Memo to Randy 427 (and others with kids)" but as it was not obviously so ... I am initiating this one.

It encourages people to consider that they are running a business, with employees ... the employees being dollar bills.

But the nice thing about these employees is that they don't ask for pay ... in fact, they bring home a paycheque for their employer, as long as s/he hangs on to them, with the employer's task to manage the employees' work effectively.

If the kid sends the Dollar (or two) out to buy ice cream ... the ice cream tastes great ... but that employee worked for its employer only once and is forever gone (to work for someone else, or, probably, several others).

I hope that during this week you find something new and interesting about your life, family, friends and/or community.

ole joyful

Here is a link that might be useful: A fresh perspective on managing money

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littlestar624

OJ,

That is an interesting approach! I like it and know some adults that could benefit from such a discussion, heh!

I know one of the few things my parents did for us early on was take all our birthday and bond money and put it in a money market account. Each month (or quarter?) we would get to see our statements and get to see our money grow. That was pretty cool, and let us know that it is valuable to save money.

DH's dad got him summer internships at his company, with the caveat that he had to contribute to his 401K, even at a young age- younger than most people even think about it. That was also a very good thing. We're both savers, possibly to a fault! ; )

Thanks for the idea on how to approach this!

    Bookmark   May 2, 2007 at 2:32PM
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joyfulguy

Hi littlestar 624,

Saving is one thing.

Many people put their money into the bank ... where it's "safe".

And the bank counts on making more on it than the depositor gets.

After all - who pays for those fine buildings?

Some time ago when I went to attend a seminar on investing put on by a bank, I asked the location of the seminar at the information desk, then moved a bit closer to the advisor to ask, rather conspiratorially, "Do you know what's better than putting your money into the bank?".

When she asked what that might be, and I replied, "Buying bank shares", she replied, laughingly, "That's for sure" - and another employee within earshot laughed, as well.

Investing, quite often, is a different kettle of fish.

I bought bank shares 40 years ago for about $4.20, paying about a dime dividend, which is taxed at a lower rate, in Canada (which benefit is lost if earned within a tax-deferred vehicle).

The value of those shares has gone up, down, and sideways over those 40 years, and now sits at about $100. That increase does not become tax-liable until I either sell the shares ... or die (at which time the executor of my estate must declare them as having been sold on the day prior to my death). I don't plan to take either of those routes, this week or next.

I like to defer the tax, yes, which I'm doing (as I would be in a tax-deferred retirement plan).

But when I liquidate shares in a retirement plan, every dollar coming out is taxed, at regular rate. But when those shares bought with non-deferred money are liquidated, I (or my estate) must pay tax on only half of the increase (at regular rate). I get half of the captal gain free of tax.

Over the years between, the annual dividend rate has increased ... a few years ago it was $1.00, then $2.00, last year $2.80, and as of a couple of months ago, is $3.08.

Your money put into the bank hasn't seen principal grow ... and the annual rate of return that it produced hasn't grown like that, either, has it?

If I borrow to invest, to gain part of the advantage that I lost in the tax that I paid before I invested, the interest is dedudctible, while it isn't if I borrow to invest in a tax-deferred retirement plan.

Plus, I figure that I can borrow to invest at very low net cost ... but that's a story for another time.

Actually, it's in a thread that I wrote on one of these money management threads, a while back.

As is my alternative method of investing rather that in a tax-deferred retirement plan.

Learn how money works - in a few years, you'll be glad that you did ... for it pays well!

Good wishes to you and yours.

ole joyful

    Bookmark   May 3, 2007 at 8:19PM
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saphire

Any concerns about US banking stocks after the sub prime mortgage thing shakes out, especially if there is no bail out

    Bookmark   May 4, 2007 at 11:21PM
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joyfulguy

Hi saphire,

I know next nothing about the U.S. banking system, except that there are a lot of little ones and a few biggies.

Our system in Canada is primarily a number of nation-wide biggies. They have proved themselves quite able to withstand the occasional buffeting of financial problems (well, so far, at least). The one that I own some shares of saw a lot of money go down a rathole in the Enron debacle.

I've been wondering whether U.S. banks so exposed got hit as hard, proportionately.

ole joyful

    Bookmark   May 5, 2007 at 3:10PM
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