Graduation Gift

Ok, so you're going to a graduation party and you need a gift. One thing you can count on is that the graduate is financially illiterate. Schools don't teach financial literacy. You may be financially illiterate as well. Or, in fact, you may have a slew of suggestions for the graduate on the financial literacy front. Forget about them and instead consider giving a book that explains systematically, in detail, what they need to know.

I know...they are graduating and the last last thing they think they need is something to read. Emphasize, when you get to talk to them on the side, that this is important reading...perhaps significantly more important than the stuf they crammed in to take their final exams.

The books can be read in one or two weekends, they are very well written and they will make a huge difference in avoiding lining brokers' pockets and getting on the path to a nice retirement. In fact, the books show that it is not that difficult to lead one's last third of life in really nice style.

Here are the books:

• Millionaire Teacher by Andrew Hallam. Now in its 2nd edition this book illustrates clearly how to successfully invest over the longer term. It details Hallam's journey and how he on a relatively modest salary achieved millionaire status at a young age, and now travels the world leading a very envious life style. To be clear the journey he describes can easily be duplicated by following the basic principles he outlines. Full disclosure: I am mentioned very brirfly in the book.
• I Will Teach You to be Rich by Ramit Seth. This book details the steps young people need to take to set up their finances and navigate the work world. 

Both Hallam and Sethi have excellent blogs:

https://andrewhallam.com

http://www.iwillteachyoutoberich.com/blog/

Spending a couple of weekends reading these books could easily make a six figure difference in the size of one's nest egg at retirement.

Your Life in Weeks

If you're like me, you enjoy creative presentations of data.  Besides the enjoyment factor, creative presentations are a different way of framing issues and, thereby, could be a so-called tipping point in getting people to understand important concepts.

Framing is key in the financial literacy arena.  For example, the usual approach of getting all worked up over compound interest, etc. and its  end result over 25 years or so just doesn't impress younger people on the importance of saving early.  They click out on the typical presentation and later show in polls that they retain very little.

With the framing idea in mind, please read the post at

"Your Life In Weeks" by Tim Urban.

The interesting part of the post (from financial literacy perspective) is the colored chart showing weeks in retirement. For some people, I believe, the visual will be more revealing for the importance of thinking about retirement than just the usual approach of citing numbers.  Urban's presentation also shows nicely how retirement is part of life overall and not just some separate issue to deal with.

Maybe somebody just as creative will develop Tim Urban's chart further by sketching out on the weekly chart where successful retirees were or should be at various weeks in their lives. 

Online Book Discussion - Millionaire Teacher

The second online book discussion of Andrew Hallam's Millionaire Teacher will kick off with a meeting at the Miller Branch of the Howard County Library System on Tuesday, 9/24/2013 at 7 p.m.  You don't have to come to the meeting to participate.  All you have to do is read one chapter per week and check into the blog.

Unlike decades past, today we are responsible for managing our own retirement.  But, we haven't been given the basics on how to proceed.  We wonder if we're saving enough, do we need an advisor, which funds should we invest in, should we take the investment advice of our stock broker brother-in-law, and countless other issues.

Andrew, and many others, argue that these basics of financial literacy should be taught in school.

Please pass this on to anyone you think might be interested.  As you can see from the syllabus on the blog, we'll cover many essential topics--such as how to avoid excessive fees in building a retirement portfolio, how to get time on your side in the investment process, how to avoid the negative impact of emotions on your investment strategy, and even how to construct a portfolio conducive to your risk tolerance.  The next time you sit in a human resources meeting confronted with making a choice among numerous funds, you'll know exactly how to proceed.

Financial Literacy Quiz

For those of you who like to take quizzes, here's a good one from Kiplinger:  QUIZ.  Short 12-question quizzes like this are fun and help you pinpoint areas where you might need to do some research. And, who knows - you might come up with something that could make a significant financial difference.

This quiz was found in an article, "Are Americans Getting Smarter with their Personal Finances?," by Kathy Kristof.  An interesting point made in the article is that the 2008 recession seemingly "scared straight" the American consumer.

Investing Early and Compounding

As summer approaches, students take jobs to help pay for college and have spending money.  This can be a really good time for parents to start their child investing by opening a Roth account in the child's name.  I would suggest a discount broker, such as Schwab, and a zero commission, broad market exchange traded fund, such as SCHB.  For $3,000, approximately 75 shares can be bought.  Take the child to the brokerage office or sit down with him/her, and open the account online.

A huge hurdle in teaching financial literacy to young people is that it isn't yet relevant.  Taking the step to actually owning shares can be the necessary step towards relevance.  It gives them "skin in the game."

An important teaching point is that this is an investment for 45 years into the future.  This whole exercise will put a young person miles ahead of the typical new hire out of college struggling in his or her first human resources meeting, where some rep of a mutual fund provider is describing investment choices.  I stress this because I constantly see smart young people who come to me and seek advice on how to invest their 401(k).  They don't know whether they should max out on their 401(k) or fund an IRA, and they don't know what funds to choose and how to allocate the contributions.

Starting with a small initial investment early on could very well spark an interest in the process of investing appropriately for one's retirement and even managing family finances.

After taking the steps to getting invested at a young age, students should grasp the importance of starting early down the investment road.  Here is a really good discussion-provoking post on the power of compounding by Joshua Kennon, "A Short Lesson On The Power Of Compounding."  Pounding home the importance of investing young gives young people the means to have choices later in life and  thereby to enable their family to enjoy life more - there are few gifts that can be more meaningful.

April is Financial Literacy Month

Yahoo has a nice interview,  "Money 101: Q&A with Warren Buffett,"  on his Secret Millionaires Club as well as various financial literacy pointers for kids.  These include:

• "The best investment you can make, is an investment in yourself.” 
• “The more you learn, the more you’ll earn.”
•  “Learn from your mistakes, and the mistakes of others.” 
•  “Great partnerships make any job easier.” 
• “Fail to plan, plan to fail.”
• “With business as in life, get to know people before you judge them.” 
• “It’s not just the outside that counts, it’s the whole package."

In Howard County Maryland, several events sponsored by the Howard County Library System are planned to offer opportunities in April to increase financial literacy.  On April 6, the East Columbia branch will host the annual Money Matters Fair at which there will be all kinds of activities for teens and younger children.  For the older crowd, there will be opportunities to get free credit reports and income tax help.

On 4/16  Jeff Yeager, author of The Ultimate Cheapskate's Road Map to True Riches, will give an entertaining presentation on living the frugal life at the Miller branch.

On 4/23 Yours Truly will give a presentation on How to Manage Your 401(k) and Other Investments also at the Miller branch.

Check in your community and you'll likely find similar activities promoting financial literacy this month.

$300,000 Party?

Please, please, please

Here we go again.  This time it's Vince Young, former NFL quarterback.  $26 million, 2006, guaranteed.  Today, Ronnie Peoples, who is involved in this fiasco, characterizes Vince Young's financial situation: "not good."  It is said he took out a high-interest loan to throw himself a $300,000 birthday party.

Please, please, please (listen to Mr. James Brown) ... someone give them or someone around them who is responsible my name and number.  I have none of these big name athletes for clients, but I can tell you I will call them stupid to their face at the very mention of funding posses, throwing $300,000 parties, buying a $176,000 Ferrari, or having to take out a high-interest loan.  Part of the sad part of this is that Vince Young (as far as I can tell) is one of the good guys!

Still, I have no problem calling them ignorant if they don't put at least half their earnings away in safe investments.  Help me out here - if you can't live large on $13 million, you've got a problem.  I will use the behavioral finance procedure of aging their picture so they can be introduced to their future self.  I will go with them to the local warehouse or construction site and talk to people who work for 40 years to make less than one 10th of what they make for signing a contract.  If they don't like it, they can fire me - I don't care.  But I won't treat them with kid gloves.

My clients don't really have a choice.  They quickly realize they need to play their cards smart to have a shot at a decent retirement.  Even then, life events can pop up that upset the proverbial apple cart. But here we have athletes and movie stars et al. blessed with a talent and lucky enough to be born in a society that values that talent, to an outrageous extent, and they throw it all away.

You would think that, since most of them went to college, they could read and understand what has befallen those in similar circumstances who have come before.

Smart Guys versus the Dummies

Made Bad Choices

Channel surfing the other night, I came across a documentary titled "Broke" - part of the ESPN 30 for 30 series. I know many of the stories of athletes making humongous amounts of money and totally blowing it - mentioned some on this blog. Still, seeing this documentary was extremely depressing. Choosing to have 9 children by 8 wives, choosing to hand over large portions of their wealth without having any idea what was being done with it, choosing to fall for the bimbos who obviously have well-thought out financial plans to bleed professional athletes for every thing they can - it's really (to use an '80s expression) truly mind blowing.

In contrast, you've got the smart ones. This is the man-bites-dog part of the story.  These are the ones you don't hear much about.  Here's a video of Brandon Lloyd of the New England Patriots from Yahoo Sports!  The Lloyd video is followed by Alfred Morris, running back phenom for the Washington Redskins (Go Skins!).

Where's the $100,000 sports car?

Both of these young men, in contrast to the dummies mentioned above, are well grounded and have excellent financial sense.

I have often wondered why so many professional athletes go off the deep end with their finances.  They have access to the best advisors and, if they reflect for a moment, have to realize they don't have to prove anything to anybody - they've already accomplished a remarkable feat even if they have only played one game at the professional level!

The bottom line is that it is about choices.  I wish the nation's teenagers could watch these videos together and then talk about who they would want to model their lives after.  After all, it is a choice everyone faces as they leave their teens.

3 Great Reads

One of the best features of the blogosphere, IMHO, is the wide-ranging topics presented on an ongoing basis.  Here are 3 I especially enjoyed this week:

• What is the best cash rewards card?  How do they compare?  How much can be saved by choosing intelligently?  Here is a great article, "Best Cash Back Credit Cards, August 2012"  from Free Money Finance, examining these questions that anyone with the analytic bug will enjoy.  Be sure to check out the comments section--it includes valuable observations as well.  This article is worth sending to college students, also, since they are on the verge of dealing with these questions.
• From Biz of Life comes a Bloomberg video interview of Jim Grant.  If you watched the Republican Convention, you know that Romney has said he will replace Fed Chairman Bernanke.  The Fed Chairman is said to be the second most powerful position in the world.  Some have said that gold bug Jim Grant should have that position.  I fully agree with Grant's position that the Fed has morphed into a central planning group whose actions mirror those of the old Soviet Union in their ineffectiveness and downright harm.
• I previously covered the poor performance of hedge funds, the bastion of "sophisticated" investors.  In this post, "Couch Potatoes Crush Hedge Funds",  Andrew Hallam, author of the best-selling Millionaire Teacher, goes into greater detail on hedge fund performance and explains how the average investor can do better.

So there it is:  personal finance, economics, investment performance - all in one fell swoop.  Enjoy!

Great Questions For the Dinner Table

It looks like they are eating broccolli - great meal!

I'm an investment advisor interested in promoting financial literacy so maybe I'm a bit prejudiced, but here are some good questions to bring up at the dinner table - after discussing Aunt Bertha's eccentricities, of course. IMHO, the dinner table is an excellent classroom.  As another thought, trips to Rehoboth work as well - the key is to have the kids and/or other family financial illiterates as a captive audience.

The questions come from an article in the Chicago Tribune by Gregory Karp of Spending Smart,  Quiz:  Your money literacy,  presented online at the Baltimore Sun.  After discussing the questions, you should read Mr. Karp's answers.

1.Would you rather have $1,000 or a penny doubled every day for a month?

2. Do your credit scores rise when you get a higher-paying job?

3. Is a household budget meant to restrict your spending?

4. Should a child's weekly allowance be tied to household chores?

5.  Should I pay off highest interest rate debt first?

6. What is the only official site for getting your credit report?

7.  If a thief steals your credit card and charges $1,000, you're responsible for how much?

8. Which investment is likely to provide the highest returns over time: stocks, bonds or certificates of deposit?

9. True or false: You must buy eyeglasses and contact lenses from an eye doctor.

10. What is the form that discloses how financial advisers are paid?

11. Which is more expensive for a family of four: food or financing a new car?

12. How many credit scores do you have?

13. How large should your emergency fund be?    

Part of the process of course is discussing the terms.  Kids know what an allowance is but probably don't know what a credit report is or even a household budget. 

 

A Graduation Gift

It's that time of the year.  You're headed to a graduation party and need to show up with something. Your problem is solved.  And theirs.

The odds are that the graduate you are celebrating is on the verge of entering a world where the financial services industry is poised to eat him or her alive, and they have had no instruction or very little on how to defend themselves.  If it's a college graduation, some big bites have probably already been taken - just ask if they made it debt free.

I recommend two books, both of which can easily be read in a couple of weekends.  These books are literally life changing, in that they are loaded with information that will put the graduate on the right financial path and they are inspirational.  Each author has lived what they preach.  Check out their respective blogs to get a flavor of their writing style.

Book #1 Millionaire Teacher : The Nine Rules of Wealth You Should Have Learned In School by Andrew Hallam.  Excellent on explaining how to invest by minimizing costs with well-diversified exchange traded funds.  Great sense of humor.  Fun to read.  Blog http://andrewhallam.com/

Book #2  I Will Teach You to Be Rich by Ramit Sethi.  Speaks the language of the younger generation.  Strong on automating finances to control expenditures.
Blog: http://www.iwillteachyoutoberich.com/

Flip the Classroom

There is growing buzz around a technique called "flipping the classroom" that financial literacy educators may be interested in.  One version involves creating video lectures for students to watch at home and then, in class, have students work on homework-type problems with the teacher available for help - essentially the opposite of the usual approach.

For example, you and I mostly sat in the classroom and watched a lecture on how to solve quadratic equations and then struggled on homework with one of our parents (who said they used to understand quadratic equations) as we did the odd problems 1 -30 (hopefully the ones with the answers in the back).  Flipping just turns the whole process around, and proponents even argue that it is a more efficient use of classroom time.

It fits in well with research I once saw that found certain ethnic groups achieved academically to the extent that family members worked on homework together.  The research found that some ethnic groups worked on homework as a family with the youngest and the oldest at the table and with the oldest helping.  For other ethnic groups, students go off on their own to do homework.  Maybe the missing link is that educators need to be at hand (I see the tutoring industry cheering wildly!) to get students over the inevitable roadblock challenges that problem-solving involves.

The well-known Khan Academy is based on this approach; and there is a much-anticipated book by Jonathan Bergmann and Aaron Sams due out that explains, in detail, their experience with the approach.

In reading about the flip, the classroom strategy, I am reminded of one of my outside-the-box approaches (at least for me) that I found worked better than expected.  A few years ago I was teaching online Money & Banking at the community college and had small classes - 11 max.  I decided, experimentally, to offer to interested students the opportunity to take tests in a group with open book.  Students faced with an open book test will mark up the book, highlight certain facts and passages, and generally read the material.  After all, they need to know where the answers are when test time comes.

In allowing students open book and group work on the tests,  I needed challenging questions.  To be successful, questions had to elicit discussion among the students.  Thus, a typical question would refer to a figure in the text and ask why interest rates rose over a certain period and how the Federal Reserve responded and was it a correct response and whether the student would argue that the Fed should have taken a different action, etc.  I would give fairly tough questions on risk-based capital that required some tricky calculating.  I would ask students to imagine Keynes and Hayek meeting today and having a conversation on the appropriate monetary policy to follow.

I sat off to the side, available to clarify what I was looking for but, for the most part, minding my own business and sipping my extra large coffee.  One of the students would typically bring donuts for everyone, including the teacher, to ensure that some extra credit was earned.

As I observed, I witnessed considerably more animated discussion on how to solve and answer the test problems than I had anywhere else in a typical classroom.  The poorer students learned from the better students.  They were explaining to each other what the text meant.  In essence, because it was a test, the degree of interest ramped up and the difference was similar to that between poker played for fun and poker played for high stakes.

Howard County Maryland Financial Literacy Event

http://jamaryland.org/

This Saturday, January 28, from 10 am - 2 pm, Junior Achievement

http://www.makingchangecenter.org/about_us.html

and makingCHANGE will put on a financial literacy event at Howard Community College.  It is free and targets youth between the ages of 12 and 18.  Young people and their parents go through various stations where they make financial decisions such as buying a car, buying groceries, paying rent, etc.  I have participated in this event the past 2 years and have enjoyed watching young people and their parents talk over financial decisions.  At the end of the day, the young people have a much better appreciation of what their parents and guardians are engaged in when they are holding a job and running a household.  Most importantly, they are exposed to the kinds of financial decisions they will be making as they become older.

The attendance is always high, and a big crowd is expected this year!

Former Major League All-Star Sues Advisor (Follow-Up)

Yesterday's post on Denny Neagle's financial woes generated some interesting comments on the need for personal responsibility in the personal finance world.  One point personal finance bloggers understand well is that nobody knows your financial situation better than you do.  Up to a certain point, everybody should know basic investment and financial planning concepts - they need to take some responsibility for financial decisions.  This definitely includes the cost of different approaches to managing assets.

Having said this, I believe I am probably not as hard-nosed as some of the commentators.  I understand exactly what they are saying when they argue that it was Neagle's fault in being taken advantage of; but, still, I try to put myself in some of these athlete's shoes.  At the time they sign professional contracts, they are young and naive.  Supposedly they have agents working on their behalf = there may be a whole back story here that hasn't come out.  Where was the agent who undoubtedly received big bucks as his representative?  I believe that major league baseball (maybe the union) has a list of approved agents and possibly approved asset/wealth managers.

Somewhere along the line, I believe, these young people signing these massive contracts should be exposed to the various views on how to invest.  At the table should be a rep explaining that many very astute market participants (including Warren Buffett, John Bogle, and Burton Malkiel) believe a large portion of assets would be best invested in low-cost, well-diversified, index funds structured with an allocation that reflects risk tolerance.  In the case of athletes, the asset allocation would take into account that there is no need to take an inordinate amount of risk given the size of the contracts.

Then, if the athlete, on the advice of his agent, goes the limited partnership/alternative investments/ high priced hedge fund route,  I join others, wish him/her the best, and have no sympathy if he/she ends up like Neagle.

To me, all of this points to the need for strong financial literacy programs in high school.  The athletes who blow enormous wealth get the publicity.  The average person ripped off by the financial services industry goes unnoticed.

Former Major League All-Star Sues Advisor

Denny Neagle, 2-time all star pitcher, and his ex - wife are suing their financial advisor who put them in hedge funds, private equity funds, and alternative investments where they have experienced large losses and today cannot access their funds.  As Larry Swedroe points out in  "Invest Smarter Than an MLB Star" posted at Arianna Capital's site, "Working with an advisor you can trust is important but shouldn't replace your own education on financial matters."

Neagle signed for $51 million in 2000.  Swedroe lists a number of other big time athletes who blew their fortunes because they were financially illiterate.  Here's the rub, at least to me - it is not difficult to gain financial knowledge.  It's a hell of a lot easier than walking to the mound in Yankee Stadium in front of 57,000 screaming maniacs with the bases loaded in the bottom of the ninth.

For example, these athletes could have saved millions by spending a weekend reading Millionaire Teacher (available at $11.49 used on Amazon) or a similar book.  The advisor  wouldn't tell them this. Quite the opposite - he would emphasize how difficult investment management is and, in the process, build up his importance and rationale for a huge fee.

Most people reading these books are learning how to build their wealth.  These books are also valuable, however, for those trying to understand how to manage risk and preserve wealth--which is a big part of the game.  It's a mistake to automatically assume that, because you are well off and have a high-priced adviser, you don't need this information.

My question, though, has to be on what the advisor's motives were.  Advisors know that accounts of this size don't come along often and are literally a gold mine.  There never is a need to try to hit the ball in the upper deck (to use a baseball pun), but especially with an account of this size.  Was the advisor that greedy?  I'm not naive - I know about Madoff et al. - but it does puzzle me!

Swedroe also points out that financial illiteracy is not just a problem for high-priced athletes.  A large percentage of adults admit to pretty much being clueless when it comes to their investments.

The sad part, IMHO, is that it isn't difficult to remedy a large part of the problem.  But until steps are taken, stories like the Neagles' will, unfortunately, be all too common.

Great Holiday Gifts!

The joy of the holidays brings the stress of choosing gifts.  Some of us will participate in that sanity-testing tradition of "Secret Santa" and draw the name of the least liked or least known person in the office or even (yikes!) the boss. Others stress over getting something for someone in a different age bracket with tastes they can't relate to.  Still others dread meandering in crowds of rude shoppers trying to get a feel for what's out there.

Here's a couple of suggestions.  Just about everyone at a certain stage in life can profitably read the following two books.  They are especially well suited for the person or couple who are in their first few years following college . This is a period where people are making financial decisions that will significantly impact their lifetime well-being.

Book #1 is Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School by Andrew Hallam.  A very quick read, even for the financial novice, this book yields insights that provide value over a lifetime.  I would suggest that a couple read it together and discuss it.  To get an idea of Andrew Hallam's writings, visit his blog.

Book #2 is I Will Teach You To Be Rich by Ramit Sethi.  Again, this is a book that young people will find invaluable.  To get an idea of Ramit Sethi's writing,s visit his blog.

Both books are available as paperbacks and are life-changing and inspirational.

America's #1 Personal Finance Book

Source: Amazon

Andrew Hallam's book Millionaire Teacher has deservedly reached #1 on Amazon's best seller list of personal finance books.  It's not hard to figure out why - it is readable, witty, and provides a desperately needed message to individuals on how to become financially literate.  If it was up to me, it would be required reading in all high schools and colleges; and Human Resources departments would do well passing it out to employees.  At least then we would know that students and workers had one real-life case put in front of them of someone who has figured out how to build wealth on a modest salary.  Millionaire Teacher spells out this valuable information.  It gives people a road map with the lessons it teaches.

But for most readers, this won't be all.  There is an added bonus... Andrew produces one of the top financial blogs in the world.  Readers will be impressed with the trips he takes and adventures he has.  It is clear that getting one's finances in order provides the means to live an interesting life.  Readers of his blog will also be inspired by the head-on battle he has fought with serious medical issues.  Not only has he fought back but he has continued as a world class distance runner.

I was honored in being asked to endorse the book.  Seeing my name in print next to the heavy hitters in the world of finance has been a thrill.  I hope that this book finds its way into the hands of the financially challenged this holiday season.  It truly has life-changing potential.

My Top 7 Posts

Kevin at "Invest it Wisely" has invited me to participate in the "My Top 7 Posts" project.
Thanks Kevin.  Here it is:  The project asks for posts related to 7 categories.  I cheated and added a couple under two headings.

Your most beautiful post

I'd have to go with the one I just wrote describing a bit about a remarkable man, Edward Abbey, who had a passion for nature.  Included in the post was a mention of the memories from cross country trips with my son.  The subtle message was that, in the end, all of this financial blogging is about enabling people to get the most out of life.  I get the same message from fellow bloggers when I read about some of the fantastic trips they have been on.

Your most popular post

The post I wrote on how to calculate the time weighted return consistently gets more hits than anything else, although it was written some time ago.  I have to say that I'm disappointed  that  brokers don't make the ability to calculate performance more readily available.  As I've mentioned and stressed in numerous posts, Schwab does and it is a reason I use them.  Incidently, posts on how to calculate just about anything tend to be popular.  I guess readers see the title and, if they don't know how to do the calculation, will read the post.

Your most controversial post

Also, probably a recent one where I disagreed with a popular finance topics journalist.  I disagreed with her assessment that a 65-year-old shouldn't "feel guilty" about being befuddled dealing with retirement questions.  My view is that people need to take responsibility before they reach 65 and think about retirement.  My comment on her site for the newspaper was deleted as inappropriate.  I guess she or her site overseer didn't like disagreement.


Your most helpful post

I have to put down two.  First, a 3-parter on advice for my younger daughter.  Like many young college graduates, she was handed a booklet on the company 401(k) and needed guidance.  The simple idea of using low-cost index funds and participating at least up to the company match and starting at a young age is lost on so many young people.  Part of the mission of my site is to get adults and those who understand this to spread the message.

Secondly, recommending Andrew Hallam's forthcoming book,  Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School and Ramit Sethi's I Will Teach You To Be Rich.  A really great part of financial blogging is that a few hours of explaining some basic concepts can make a huge difference in people's lives that they will be thankful for many years in the future.


A post whose success surprised you

A post about Michael Jordan's house got more attention than I expected.  But, on reflection, I guess with people around the world constantly plugging his name in search engines it probably isn't surprising. Anyways, it was a good chance to explain the difference between value in use and value in exchange - a distinction many people, even those who have taken economics, don't get.

A post you feel didn't get the attention it deserved

I wrote about the Khan academy  which has an enormous library of online educational YouTube videos on all kinds of subjects, including financial topics, which I didn't get much response on.  I probably didn't go into enough depth because I know people are very much interested in the basics, such as how to calculate P/E ratios, present value, and why bond prices drop when interest rates rise and all of this at people's fingertips at the Khan Academy site.  Many of these topics are explained very well by Khan who has been called Bill Gate's "favorite teacher."

The post you are most proud of

Again, a 3-parter that takes new investors through the Schwab site but encourages them to check out their own site.  The purpose is to get newbies over their fear of investing.  For some, it is like a math phobia.  Many are surprised at the information they have at their fingertips and how useful it is in getting them on a solid path to reach their goals for retirement.

It’s your turn!

I nominate…

Monevator


The Biz of Life


The Investment Fiduciary


The Dividend Ninja

MoneyCone

Thanks again, Kevin, for the invite!

Financial Concepts Children Need to Know at Various Ages

As they have demonstrated with unwavering consistency, kids are financially illiterate.  Many parents understand that this puts them at the mercy of the shark-infested waters of the financial services industry and are seeking a remedy.

Here is a good article on "What Kids Should Know About Money At 9, 13, 18 and 23."

I would add that someone in the family should sit down with the "kid" when they get their first real job and carefully go over the benefits package, including insurance offerings, health insurance choices, and especially the company 401(k).  At this point, carefully review the importance of exploiting the company match as well as saving and investing at a young age.

Bankrate offers a simple savings calculator that can show the value of saving at a young age.

Two books I recommend that can be read profitably by  parent as well as budding careerist are:
I Will Teach You To Be Rich and Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School

Investing

Tomorrow I talk to a group of kids from low income families on investing.  It is the last subject in a multi-week program on Financial Literacy put on by Making Change of Howard County.

What should my message be?  Should I get into the nitty gritty of how to invest in common stock by getting quotes, doing fundamental research, etc.?  Should I talk about p/e ratios, book value, and such? Or should I talk about the value of time and explain how money grows over long periods of time, what a 401(k) is, and understanding whether their employer offers a match?

I teach economics as a profession, so I have to start with some economics.  I'll try to convince them that they are, in fact, wealthy both in relation to the world today and to all the people who have ever lived.  I'll point out that there are billions of people on the planet who have no easy access to clean water, aren't sure where their next meal is coming from, and do hard physical labor even at a young age.  I'll point out that living in a free market, capitalistic economy means that the best and brightest among us are working 24/7 trying to figure out what we want in the way of clothes, music, cars, vacations, etc.  This extends to the medical field as well.

I'll point out that my ancestors 300 to 400 years ago were probably in northeastern Poland on the Russian border.  Historians tell us that they were self sufficient, probably never traveled more than 75 miles from where they were born, ate food that we couldn't stomach today, and likely totally illiterate. Their life expectancy was less than half ours.
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I'll ask some questions.  I'll ask  how much they would have to be paid to give up the internet including Facebook, etc., for the rest of their lives.  I'll ask if they would rather have been the richest person alive 200 years ago or an average American today.  I'll point out that there was no such thing as the internet when I was their age and the richest person alive 200 years ago never rode in an automobile or even had television.  I'll point out that 200 years ago people died of diseases that have since been eradicated by medical science.

On the investing side, my most important message will be the importance of delaying gratification and taking advantage of time.  I'll briefly describe Mischel's famous marshmallow experiment where young kids were given a choice between eating a marshmallow now or waiting 15 minutes and getting 2 marshmallows.  The experiment teaches a lot on the difficulty of delaying gratification.

I'll stress how $1,000 grows at an 8% rate of return over a working life of 40 years.  We'll talk a bit about the 401(k) and how that will likely be their first encounter with investing.  This will entail an explanation of mutual funds and the company match and a mention of the risk/return trade off.  The main message will be that, if they invest and save smartly, someday when their 65th birthday arrives (the hardest thing of all for younger people to grasp!) they will have choices.