MONEY Insurance

Here’s How to Figure Out How Much Life Insurance You Need

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Robert A. Di Ieso, Jr.

Q: How much insurance should I have? I was recently married and have been considering acquiring life insurance. We do not have any children, and I cannot really find any information on how much I should get. — Marcus Smail

A: It’s a smart move to get life insurance if you have a spouse or other family members who depend on you and your income, especially if you don’t have a large savings account.

Figuring out how much insurance you should buy basically boils down to answering one question: How much income do your survivors need if you’re gone?

Of course, to know this you’ll need to first look at your debt, monthly spending, monthly savings, and your long-term savings goals, as well as your expected funeral/estate settling costs. Steven Weisbart, senior vice president and chief economist at the Insurance Information Institute, recommends using this calculator from Life Happens, which walks you through the process by allowing you to input those details, as well as play with the estimated inflation rate and after-tax investment yield to get a recommended figure for the amount of life insurance you need.

Weisbart suggests getting coverage equal to 10 times your annual income, if you can afford the premiums. “Anything less doesn’t provide much transitional time for your surviving spouse or children,” he says. “You don’t want to put them under time pressure while they try to adjust to life without you.”

This approach, which is focused on income replacement, generally results in a large amount of insurance coverage. Another approach people use when determining life insurance needs is to focus instead on buying enough insurance to keep their financial obligations from causing a hardship to their survivors. “They’d look at the mortgage, car leases, and other commitments they’ve made and figure out how much their family would need to cover those bills without their income,” Weisbart says.

Keep in mind that you may already have some life insurance coverage through your employer and that your spouse and children may be eligible for Social Security survivor benefits, depending on how many credits you have earned at the time of your death. Any funds stored away in retirement accounts or other savings vehicles can also be factored in to lower the total amount of insurance coverage you’ll need.

Before you decide to purchase a policy and select a coverage amount, it is a good idea to meet with a fee-only certified financial adviser, who can tell you if the amount you estimated using the calculator is, in fact, correct for your situation and family. An adviser can also help you decide what kind of life insurance you should purchase and the amount you should expect to pay for it. Says Weisbart: “It’s good to talk through this with someone who has done this a couple of thousand times before and who can really guide you.”

Be sure to revisit your life insurance coverage amount when major life events occur, such as the birth of a child, divorce, or when you become empty-nesters, as your coverage needs will likely alter.

MONEY Debt

How to Prove You Paid Off an Old Debt

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An unresolved collection account can haunt you for years.

Resolving a collection account can feel like lifting a weight off your shoulders: You can finally move on. But what happens when it comes back to haunt you again? Can you ever really put a bad debt behind you?

A reader with the screen name “Frustrated” shared their story on the Credit.com blog:

We used a debt consolidation company in 2010 to settle some credit cards. A (credit) card was settled for about half the amount owed and the rest charged off, which shows on our credit report. We are now getting calls from a collection company for the remaining amount. This shows on our credit report, same account number, right below the closed/charged off debt. How can they do this…is it legal?

Another reader, Betsy, says she settled a debt four years ago, but has just been contacted by a collection agency claiming she still owes the debt. Not long ago, she says, she shredded the paperwork she held onto for three years “just in case.” Now she has no proof the debt was paid—and this new collection agency is not only trying to collect, they are damaging her credit as well.

Two new initiatives may help consumers put debts like these behind them once and for all.

The first is through Global Debt Registry, a central repository for charged-off debts, which provides an “Account Extinguishment Report” that can be used as proof a debt has been resolved. Similar to getting the title when your car is paid off, or a notice of “release and satisfaction” when a judgment has been resolved, this document can serve as “definitive proof that an account has been closed and can no longer be subject to collection,” says Mark Parsells, CEO with Global Debt Registry.

To get an Account Extinguishment Report, consumers need to check if it is available on DebtLookUp.com or ask the collector for it. It’s free for consumers, but creditors pay to be a part of the Global Debt Registry, so it may not be available for every debt.

Parsells notes that the collection and debt buying industry has been consolidating rapidly. A firm a consumer has paid may go out of business, and account records may get shuffled around or even lost in the process. If the debt somehow winds up in the hands of another collection agency, it can be a major hassle to try to straighten it out.

And an unresolved collection account not only hurts a consumer’s credit scores, it may hold up a mortgage application as well.

Protect Yourself Against Zombie Debt

Anytime you resolve a debt with a collection agency, get it in writing — before you settle. “No letter, no deal, no exceptions, ever,” says debt settlement expert Charles Phelan, founder of ZipDebt.com. Settling a debt is a change to the original agreement, he explains, and all changes must be in writing. He says he’s seen too many situations where consumers didn’t take this step and it came back to bite them.

And that’s where the second initiative comes in. “When consumers have settled a debt they will receive a closing statement or invoice from the debt buyer,” says Jan Stieger, executive director of DBA International, a trade association whose members represent approximately “80% of the legitimate debt buying industry” according to Stieger. She is referring to the fact that DBA International is in the process of certifying all members, and standards require this information be provided to the consumer. The document should note the debt has been settled in full. Save it in a safe place indefinitely. (Alternatively, you can ask the collector if they will file an Account Extinguishment Report, which will be housed by Global Debt Registry. If they do, it’s not a bad idea to print and keep a copy for your records as an extra back up as well.)

If you are contacted by a collection agency about a debt you believe you have been paid, federal law gives you the right to request validation of the debt. Within five days of contacting you by phone, the collection agency must send you written verification of the debt. Once you receive that, you have thirty days to dispute the debt. Do so in writing, via certified mail. If you believe the debt was settled or paid in full, tell the collection agency that.

“Request a full chain of title,” says Steiger. If you are dealing with a legitimate collection agency, “They will be able to produce it,” she adds.

Don’t be afraid to question a collector if something seems suspicious. Scammers often prey on consumers with bad credit and may threaten them with dire consequences if they don’t pay them immediately. Use the free service at DebtLookUp.com to research a collection agency and read this guide to protecting yourself from debt collection scams.

Get your free annual credit reports to see what is reported. If a debt you paid does not show a zero balance, or if it was subsequently sold to a collection agency, you can dispute it. Paying a collection account typically doesn’t raise your credit scores immediately, but it can prevent a lawsuit that could make them worse.

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MONEY consumer psychology

10 Reasons You’re Not Rich Yet

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#5: You’d rather complain than commit.

As a financial advisor, I have spent many years helping other people overcome financial stumbling blocks so they can become rich. Ironically, the one person I have had the most trouble helping is myself.

Being “rich” can mean different things to different people, but I believe it means having the financial freedom to achieve your goals and live the life you want. I am great at giving advice; I am not always so great at taking my own advice (know anyone like that?). So, when it came to helping my clients understand why they weren’t rich yet, the easy part was explaining the culprits, because I was all too familiar with most of them.

Regardless of our upbringing, education, profession or lifestyle, most of us are not where we want to be financially and our reasons are probably more similar than different. The good news is that it is never too late to become rich if you, like me, are ready to own up to the reasons you’re not and do something about it.

Want to know why you aren’t rich yet? Keep reading.

#1: You spend money like you’re already rich.

Sure, it feels good to buy expensive things, whether it’s a luxury car, designer clothes, a big house in the burbs, or a tropical vacation. Even if you don’t necessarily buy pricey items, if you consistently buy stuff you really don’t need, it still adds up fast ($300 trip to Target for toothpaste? AHEM). But the shopping high only lasts until the guilt and regret set in or the credit card bill arrives. Most of us are guilty of living beyond our means and using credit cards more than we should. The problem is that as long as we continue to spend more than we have, we can’t start building wealth. Chronic overspending and high-interest, revolving credit card debt are your worst enemies when it comes to financial success. Spend like you’re poor and you are much more likely to become rich.

#2: You don’t have a plan.

Without clearly defined short, mid and long-term goals, becoming rich will just seem like an unattainable fantasy. And that turns into your go-to excuse for why you shouldn’t bother saving or stop overspending. As we say in the financial industry: those who fail to plan, plan to fail. Creating a financial plan may seem overwhelming or intimidating, but it doesn’t have to be. Whether you do-it-yourself or decide to work with a financial professional, the process simply starts with prioritizing your goals and writing them down. Put that list where you can see it on a regular basis. Visual reminders go a long way in helping us stay on track.

#3: You don’t have an emergency fund.

I know, you’ve heard it a hundred times: you need to have at least six months of income saved in an emergency fund. And yes, it’s much easier said than done. However, I’ve seen too many people (including myself) get hit with a major unplanned expense, whether it’s a car or home repair or a medical bill, or an unexpected job loss, accident or illness that’s led to a drastic reduction in income. When these things happen–and they do, more often than you might think–not having a financial safety cushion can make the situation much, much worse. If you’re forced to rely on credit cards, you’ll end up sinking deeper into debt instead of, yes, saving to become rich.

#4: You started late.

With every year or month that goes by without saving, your chances of becoming rich decrease. Time and compounding interest are your two best friends when it comes to growing money, so wasting them really hurts. Just like exercising, the hardest part of saving is starting. Even if you’re in debt, making little money or have a lot of expenses, you can still always save something — even if it is a small amount. The sooner you get yourself into the habit of saving — regardless of how much — the easier it will be for you to continue and eventually increase those savings. I like to think of saving as a muscle you have to work out and build with practice. Even if you start saving late, you can still become rich if you’re committed enough. But you need to start. Now.

#5: You’d rather complain than commit.

“Life is too expensive.” “I’ll never get out of debt.” “I don’t make enough money.” “Investing is too risky.” I’ve probably heard every excuse for why someone isn’t saving, investing or planning in general, and I’ll admit I’ve used a few of them myself from time to time. It’s easier to be lazy and let bad habits fester than to commit to –and follow through on — changing them. It’s no wonder obesity and debt are epidemics in our country, and that millions of Americans have had to push off retirement. As long as the complaining, excuses and finger-pointing persist, so too will not becoming rich. Instead, take responsibility for your bad habits and focus on what you can do to change them. Then do it.

#6: You live for today in spite of tomorrow.

I get it. It is really hard to think about retirement and other distant fantasies when we have needs and plenty of wants now. The bills have to get paid, the family must be fed, momma needs a vacation — and a new wardrobe to go along with it. The problem is that impulsive and overly-indulgent behavior commonly lead to credit card debt, spending money you might have otherwise saved and, yes, not becoming rich. Do yourself a favor: Ditch the “buy now, worry later” mindset and instead, adopt a “save now, get rich later” mindset.

#7: You’re a one-trick investor.

You might be lucky enough to become rich by betting all your money on one type of investment. Just like you might be lucky enough to win the lottery. But that’s not a strategy for getting rich (at least, not one I’d ever recommend).

One of the worst financial mistakes you can make is putting all your money eggs in one basket. Doing so puts you at too much risk, whether it is being too conservative or too aggressive. Sure, the stock market is on a run and real estate is on an upswing again, but are you prepared for when the tides turn? Because they will. And if you are invested in all fixed-income securities like CDs, bonds and annuities and think you’re safe, inflation should make you think again. Your investment portfolio needs to include a good mix of investments with varied levels of risk and return potential and liquidity (so you can get your money when you need it).

#8: You don’t automate.

Here’s the secret to saving: Automation. Saving is seamless when it’s automatic. Unfortunately, we are not born to be savers. We are impulsive and greedy by nature. Being responsible requires much more discipline. However, automation forces us to be responsible without too much effort. And all it requires is setting up regular transfers from a paycheck or bank account to a savings or investment account. Without it, we are much more likely to spend money we could be saving. Even if it is a seemingly small amount that you automate, those steady investments can make a big difference over time. Automate whatever you can whenever you can; just be careful to avoid overdrafting your account and try to increase your savings amount periodically.

#9: You have no sense of urgency.

You might think you don’t need to worry about getting out of debt or saving because someone, or something else will save you. Maybe it’s a pay raise, a new job, an inheritance, a rich spouse, or the lotteryyou’re counting on. Whatever “it” is, you use it as an excuse to put off taking steps on your own to become rich. The problem is that very little in life is certain. Who knows what will actually happen, or not happen, so why not focus on what you can control now? Save now and save yourself — just in case something, or someone, else won’t.

#10: You’re easily influenced.

Maybe you live with a chronic overspender or a typical day out with your girlfriends involves shopping. Or maybe it’s your inner “Real Housewife” that you sometimes can’t control. We all have negative influences in our lives that threaten our chances of becoming rich. The superficial, materialistic, sensational culture in which we live is probably the biggest one. The suffocating swirl of media that goes along with it makes it ten times worse. The trick is not giving in to temptation. How? Some of it is making conscious choices to avoid putting yourself in vulnerable positions. But most of it is having the willpower to keep the goal of becoming rich in the front of your mind, especially when you are tempted to sabotage yourself.

More From Daily Worth:

MONEY financial independence

Financial Lessons of America’s Founding Fathers

What can the men who adorn our currency teach us about our own finances? Quite a lot, actually, but not because they were all as good with money as they were at creating a nation.

In theory, the founding fathers should be the ultimate financial role models. After all, they’re literally on the money. Warren Buffett might be every investor’s hero, but even he can’t count his earnings without seeing the faces of Washington, Hamilton, Franklin, and Jefferson. Even John Adams, perhaps the most neglected of the founding fathers, has been commemorated on the dollar coin.

What can the men who adorn our currency teach us about our own finances? Quite a lot, actually, but not because they were all as good with money as they were at creating a nation. Jefferson, for example, amassed a great fortune but later squandered it and ended his life all but penniless (despite, of course, the economic advantages of being a slaveholder). But others, including Washington — a shrewd and even ruthless businessman — died very wealthy men.

Here are some of the lessons, still applicable today, that can be drawn from these historic financial lives.

Have a Back-up Plan

Alexander Hamilton may have been the greatest financial visionary in American history. After the Revolutionary War, as Washington’s Treasury Secretary, Hamilton steered the fledgling nation out of economic turmoil, ensured the U.S. could pay back its debts, established a national bank, and set the country on a healthy economic path. But it turned out that he was far better at managing the country’s finances than his own.

When Hamilton was killed in a duel with vice president Aaron Burr, his relatives found they were broke without his government salary. Willard Sterne Randall, biographer of multiple founding fathers, recounts that Hamilton’s wife was forced to take up a collection at his funeral in order to pay for a proper burial.

What went wrong? Hamilton’s law practice had made him wealthy and a government salary paid the bills once he moved to Washington, but he also had seven children and two mistresses to support. Those expenses, in addition to his spendthrift ways, left Hamilton living from paycheck to paycheck.

The take-away: Don’t stake your family’s financial future on your current salary. The Amicable Society pioneered the first life insurance policy in 1706, well before Hamilton’s demise in 1804, and term life insurance remains an excellent way to provide for loved ones in the event of an untimely death. Also, don’t get into duels. Life insurance usually doesn’t cover those.

Diversify Your Assets

Conventional wisdom holds that investors shouldn’t put all their eggs in one basket, and our nation’s first president prospered by following this truism.

During the early 18th century, Virginia’s landed gentry became rich selling fine tobacco to European buyers. Times were so good for so long that few thought to change their strategy when the bottom fell out of the market in the 1760s, and Jefferson in particular continued to throw good money after bad as prices plummeted. George W. wasn’t as foolish. “Washington was the first to figure out that you had to diversify,” explains Randall. “Only Washington figured out that you couldn’t rely on a single crop.”

After determining tobacco to be a poor investment, Washington switched to wheat. He shipped his finest grain overseas and sold the lower quality product to his Virginia neighbors (who, historians believe, used it to feed their slaves). As land lost its value, Washington stopped acquiring new property and started renting out what he owned. He also fished on the Chesapeake and charged local businessmen for the use of his docks. The president was so focussed on revenues that at times he could even be heartless: When a group of revolutionary war veterans became delinquent on rent, they found themselves evicted from the Washington estate by their former commander.

Invest in What You Know

Warren Buffett’s famous piece of investing wisdom is also a major lesson of Benjamin Franklin’s path to success. After running away from home, the young Franklin started a print shop in Boston and started publishing Poor Richard’s Almanac. When Poor Richard’s became a success, Franklin reinvested in publishing.

“What he did that was smart was that he created America’s first media empire,” says Walter Isaacson, former editor of TIME magazine and author of Benjamin Franklin: An American Life. Franklin franchised his printing business to relatives and apprentices and spread them all the way from Pennsylvania to the Carolinas. He also founded the Pennsylvania Gazette, the colonies’ most popular newspaper, and published it on his own presses. In line with his principle of “doing well by doing good,” Franklin used his position as postmaster general to create the first truly national mail service. The new postal network not only provided the country with a means of communication, but also allowed Franklin wider distribution for his various print products. Isaacson says Franklin even provided his publishing affiliates with privileged mail service before ultimately giving all citizens equal access.

Franklin’s domination of the print industry paid off big time. He became America’s first self-made millionaire and was able to retire at age 42.

Don’t Try to Keep Up With the Joneses

Everyone wants to impress their friends, even America’s founders. Alexander Hamilton blew through his fortune trying to match the lifestyle of a colonial gentleman. He worked himself to the bone as a New York lawyer to still-not-quite afford the expenses incurred by Virginia aristocrats.

Similarly, Thomas Jefferson’s dedication to impressing guests with fine wines, not to mention his compulsive nest feathering (his plantation, Monticello, was in an almost constant state of renovation), made him a life-long debtor.

Once again, it was Ben Franklin who set the positive example: Franklin biographer Henry Wilson Brands, professor of history at the University of Austin, believes the inventor’s relative maturity made him immune to the type of one-upmanship that was common amongst the upper classes. By the time he entered politics in earnest, he was hardly threatened by a group of colleagues young enough to be his children. Franklin’s hard work on the way to wealth also deterred him from excessive conspicuous consumption. “Franklin, like many people who earned their money the hard way, was very careful with it,” says Brands. “He worked hard to earn his money and he wasn’t going to squander it.”

Not Good With Money? Get Some Help

In addition to being boring and generally unlikeable, John Adams was not very good with money. Luckily for him, his wife Abigail was something of a financial genius. While John was intent on increasing the size of his estate, Abigail knew that property was a rookie investment. “He had this emotional attachment to land,” recounts Woody Holton, author of an acclaimed Abigail Adams biography. “She told him ‘Thats all well and good, but you’re making 1% on your land and I can get you 25%.'”

She lived up to her word. During the war, Abigail managed the manufacturing of gunpowder and other military supplies while her husband was away. After John ventured to France on business, she instructed him to ship her goods in place of money so she could sell supplies to stores beleaguered by the British blockade. Showing an acute understanding of risk and reward, she even reassured her worried spouse after a few shipments were intercepted by British authorities. “If one in three arrives, I should be a gainer,” explained Abigail in one correspondence. When she finally rejoined John in Europe, the future first lady had put them on the road to wealth. “Financially, the best thing John Adams did for his family was to leave it for 10 years,” says Holton.

As good as her wartime performance was, Abigail’s masterstroke would take place after the revolution. Lacking hard currency, the Continental Congress had been forced to pay soldiers with then-worthless government bonds. Abigail bought bundles of the securities for pennies on the dollar and earned massive sums when the country’s finances stabilized.

Despite Abigail’s talent, John continued to pursue his own bumbling financial strategies. Abigail had to be eternally vigilant, and frequently stepped in at the last minute to stop a particularly ill-conceived venture. After spending the first half of one letter instructing his financial manager to purchase nearby property, John abruptly contradicted the order after an intervention by Abigail. “Shewing [showing] what I had written to Madam she has made me sick of purchasing Veseys Place,” wrote Adams. Instead, at his wife’s urging, he told the manager to purchase more bonds.

Make A Budget… And Stick To It

From a financial perspective, Thomas Jefferson was one giant cautionary tale. He spent too much, saved too little, and had no understanding of how to make money from agriculture. As Barnard history professor Herbert Sloan succinctly puts it, Jefferson “had the remarkable ability to always make the wrong decision.” To make matters worse, Jefferson’s major holdings were in land. Large estates had previously brought in considerable profits, but during his later years farmland became extremely difficult to sell. Jefferson was so destitute during one trip that he borrowed money from one of his slaves.

Yet, despite his dismal economic abilities, Jefferson also kept meticulous financial records. Year after year, he dutifully logged his earnings and expenditures. The problem? He never balanced them. When Jefferson died, his estate was essentially liquidated to pay his creditors.

 

MONEY financial advisers

Why Financial Advisers Need a Good Bedside Manner

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It's not just what you say, it's how you say it.

We financial planners are a bit like doctors: In both professions, how successful you are early on in managing people’s health, whether financial or physical, can have a big impact on how well those people live later on.

Like doctors, we financial planners also benefit from having a good bedside manner when communicating with the people we’re helping. That’s particularly true when the news we have to deliver is not so good—especially if the bad news stems from a self-inflicted wound.

Not too long ago I read a financial advice column in which the person seeking advice shared how his financial decisions, his health challenges, and macroeconomic events resulted in him and his family being in a very tough financial situation.

As I read the writer’s request for guidance, I could feel his stress. He was obviously seeking help and didn’t know where to turn.

The columnist’s response was unsympathetic. There was harsh judgment of the person asking for help and the financial decisions he had made. To say the response lacked empathy, would be an understatement. As for the advice itself, you might call it “tough love,” but I thought it was minus the love.

I’m sure we’ve all experienced some degree of poor service, but chances are it was a transaction that started and ended in that moment. Many of us have encountered a health professional who has been cold and aloof, and I’m sure it didn’t feel good.

I have had the pleasure of seeing doctors who were very empathetic, but I’ve also talked with doctors who shared undesirable news in a matter-of-fact manner then simply walked away. I wasn’t sure what hurt more—the news itself or the manner in which it was delivered.

Financial planners are not doctors, but we are entrusted professionals who look after our clients’ financial well-being. When financial stress hits the people we serve and they seek our assistance, we have to ask ourselves whether the advice we’re giving is judgmental or empathetic. Are we focused on the person’s financial need, or are we being more critical of the person in need?

While I don’t view any of my clients as children, I’ve learned in raising my sons that tough love isn’t always effective. Encouragement can be just as effective as wagging a finger.

Suffice it to say, I believe having a good bedside manner can make a huge difference in helping our clients achieve better financial health.

Frank Paré is a certified financial planner in private practice in Oakland, California. He and his firm, PF Wealth Management Group, specialize in serving professional women in transition. Frank is currently on the board of the Financial Planning Association and was a recipient of the FPA’s 2011 Heart of Financial Planning award.

MONEY Kids and Money

This App Will Have the Kids ‘Beg’ for More Chores

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Marcelo Santos—Getty Images

Here's how to keep the kids busy this summer, and teach them a thing or two about money and responsibility.

Any website that promises “your kids will beg to do their chores” deserves a skeptical eye. What might they promise next? They’ll eat all their vegetables? Floss after every meal?

Yet while the designers at ChoreMonster may be given to hyperbole, they also just might have hit on an answer to getting the kiddos to make their bed and empty the dishwasher without being asked for the thousandth time—and learn something about money and responsibility in the process.

Online chore charts are nothing new. You might even say the space is getting overcrowded for websites and apps that let parents assign chores to youngsters, tweens and teens, monitor progress and bestow awards for a job well done. The family can get organized at MyJobChart, ChoreBuster and FamilyChores. Places that connect allowance to household duties include Famzoo, iAllowance, allowance manager, Tykoon, GetPiggyBank and Threejars. The idea is to get the kids to pitch in, without all the nagging. That means doing it online and offering an incentive.

What makes ChoreMonster different is its engaging platform, which has plenty to offer parents and kids alike—like a timely list of seasonal chores you may not have considered, and funny little sounds and animated monster rewards. This is especially welcome as the dog days of summer roll in, and the kids are home all day and there are so many extra things that need to get done around the house. You know: cut the grass and wash the car.

Through a tie-in with Disney, ChoreMonster parents were able to reward kids with exclusive pre-release clips of the Pixar movie Inside Out in May and June. The company says it was a popular reward, and that other partnerships and unusual tie-ins will follow. In the meantime, rewards like TV and other screen time as well as cold hard cash should work just fine.

For this summer, ChoreMonster suggests having the kids clean the barbecue grill and the wheels on the family car, in addition to things you are more likely to have considered, like watering the garden and sweeping out the garage. Cash rewards should come with a money discussion, according to the site, which suggests 25% be set aside for a new game or book, 25% for a trip or other outing, and 50% for a future car or college. This conversation may be the most important one you have with your kids this summer, as it should get them thinking about concepts like wants vs. needs, budgeting, and saving. You might also have them consider carving out 10% for chartable giving.

The average allowance comes to $65 a month, according to a study from the American Institute of CPAs. Six in 10 parents pay allowance, half start the kids at age 8, and 89% expect their kids to work around the house at least one hour a week. There is a big debate about whether allowance should be tied to chores. Most of the sites and apps make it easy to keep track of which chores have been done and how much has been earned—whether it’s for allowance or straight pay.

What are the most popular rewards? Half of parents grant screen time (typically one hour); 14% pay cash; 11% give ice cream or some other treat; 6% buy a toy; and 3% pay for an outing. The top chores assigned are brush your teeth, make the bed, feed the pets, organize your laundry, and clean your room.

Monday is the best day for chores being completed and Friday is the worst, according to ChoreMonster. More assigned chores get completed on the West Coast than any other region, the company found. So much for that laid back California culture. Their kids probably eat their vegetables, too.

 

 

 

 

 

 

MONEY credit cards

3 Credit Cards That Will Save You Money on Summer Travel

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Jonas Jungblut—Gallery Stock

Make sure you have these pieces of plastic in your wallet before you head out the door.

Travel season is upon us—time to hit the road!

Americans drive an average of almost 1,000 miles a month—roughly the distance from New York to Orlando—from July to September, per a recent AAA Foundation for Traffic Safety and Urban Institute study. We take to the air more often as the weather gets warmer too. All that wanderlust doesn’t come cheap: A gallon of gas will set you back about $2.80, while the average domestic flight costs around $400.

So if you plan to do any traveling over the next three months, consider signing up for one of the following three rewards credit cards. You’ll enjoy 5% back at the pump, lucrative signup bonuses, and the chance to earn free flights. Of course, rewards are never worthwhile if you don’t pay your balance in full each month or utilize more than 30% of your available credit. But if you’re financially ready for a rewards card, these offer a way to save real money.

For Drivers

The card to use at the pump this summer is the Chase Freedom. Throughout the year, this rewards card offers 5% cash back on rotating categories including department stores and restaurants. From July through September, though, cardholders will earn 5% back at gas stations, up to $1,500. You’ll also receive a $100 signup bonus after spending $500 within three months of opening your account.

If you spend $250 a month on gas, you’ll earn about $38. Toss in the signup bonus, plus the cash back from filling up a second car, and you’re looking at a little more than $175. There’s no annual fee, so you won’t be penalized for keeping the plastic in your wallet when the categories change in the fall.

For Fliers

Every frequent flyer should consider one of these: Chase Sapphire Preferred and Barclaycard Arrival Plus World Elite. Both are reward-rich products that offer significant signup bonuses. Determining which card is right for you depends, in part, on what you value in a travel rewards card.

The best way to think about the Arrival Plus World Elite is that it’s a cash-back card for travel purchases. Cardholders rack up “miles” in a number of ways. For example, you’ll receive 40,000 miles after spending $3,000 in the first 90 days; two miles per $1 spent; and a 10% rebate when you redeem miles for any kind of travel charges. A mile is worth a penny, so the signup bonus alone nets you $440 when used toward travel purchases (which include taxis, flights, and campgrounds.) You don’t have to deal with airline frequent flier programs or miles awards charts. Plus there’s no foreign transaction fee and you’ll receive your FICO score with every statement. The $89 annual fee is waived the first year.

The Chase Sapphire Preferred is a bit of a hybrid. You can apply your points as a credit on your card statement for travel at one point per penny, with a 20% discount for booking through Chase. That can boost the signup bonus—40,000 points after spending $4,000 in the first three months—to $500. But you can also transfer your points to frequent flier programs on partner airlines like Southwest and United at a one-to-one rate, so you can take advantage of a particular airline’s loyalty program. You earn two points per dollar spent on travel and dining and gain 5,000 bonus points after you add an authorized user who makes a purchase in the first three months. There is a $95 annual fee, waived the first year.

Check out the entire MONEY Best Credit Cards list here. Safe travels!

MONEY

4 Qualities a Financial Adviser Ought to Have

Yoda in Star Wars Episode V: The Empire Strikes Back
Lucasfilm/20th Century Fox—The Kobal Collection Yoda in Star Wars Episode V: The Empire Strikes Back

Clients want a leader... but not the stereotypical kind.

It’s not surprising that, according to a 2014 study, almost 90% of clients want their financial planner to be a strong leader.

What is surprising, however, is the way those clients described leadership.

In the study, conducted by the Financial Planning Association’s Research and Practice Institute—and which Julie Littlechild of Advisor Impact discussed in a recent speech—clients said a strong leader should have these four qualities: expertise, skill as a guide, deep understanding, and vulnerability.

Let’s examine those qualities.

1. Expertise: Leaders typically have a strong base of professional expertise that goes beyond general knowledge of their field. This is why continuing education is paramount to good financial planning.

Even more important, leaders have wisdom: the combination of knowledge and experience. A new college graduate has knowledge. A 30-year planner has a high probability of having wisdom.

Clients want planners to be experts, to have knowledge about all things financial, and to know how to apply that knowledge to clients’ unique sets of circumstances.

2. Skill as a guide: Guiding is the ability to use expertise and wisdom to help clients go where they want to go, not where the planner thinks they should go. An effective guide first finds out where clients want to go, devises the safest, most effective route to get them there, and leads the way.

I don’t know of any academic courses that teach financial planners how to guide. It’s learned experientially. Planners learn it by walking the walk, treading the same path for themselves that they will lead their client on.

3. Deep understanding: What’s surprising about this quality is the word “deep.” Certainly, leaders need to understand their followers. But to understand someone deeply is much more intimate and encompassing than a superficial understanding of a person’s general needs, intentions, or desires.

Deep understanding comes through hours of genuine listening, asking probing and thoughtful questions, and having a genuine concern for the client’s well-being. It establishes a deep sense of belonging and acceptance.

For most financial advisers, the capacity and skills to understand someone deeply are not intuitive. They need to be acquired by learning and especially by experientially applying the principles of Motivational Interviewing, Appreciative Inquiry, and Positive Psychology. This training is rarely part of financial planning or finance programs.

4. Vulnerability: This was the most surprising quality. My image of a leader is that of a General Patton or President Lincoln: strong, resolved, visionary, courageous. Not vulnerable. Yet, in truth, vulnerability requires incredible strength of character, vision, and courage.

Financial advisers who are comfortable with their vulnerability are able to expose their humanity and failings. All of us can relate to someone who has screwed up. None of us can relate to someone who hasn’t. Planners willing to admit their errors beget trust and confidence in those around them. The strength to be vulnerable comes from spending a lot of time in self-reflection and personal growth.

Of the four qualities people look for in a strong leader, only one, expertise, can be learned academically. The other three—skill as a guide, deep understanding, and vulnerability—are learned experientially. Anyone who completes the course of study to obtain a financial planning degree has gained only 25% of the necessary skills to become what their clients are looking for in a planner. Someone who adds a degree in counseling conceivably has 50% of the skills.

Becoming a trusted leader and adviser goes further. It requires us to develop and apply in our own lives the relationship skills and leadership we want to offer to clients.

==========

Rick Kahler, ChFC, is president of Kahler Financial Group, a fee-only financial planning firm. His work and research regarding the integration of financial planning and psychology has been featured or cited in scores of broadcast media, periodicals and books. He is a co-author of four books on financial planning and therapy. He is a faculty member at Golden Gate University and the former president of the Financial Therapy Association.

MONEY

You’ll Never Guess the Latest Victims of the Student Loan Crisis

hand reaching out of hole using adding machine with rolls of paper
Renold Zergat—Getty Images

A fast-growing number of seniors are hitting retirement with a student debt burden. Even their Social Security is at risk.

Most debt you can get out of—painful as it might be. Credit card debt can be cleared in bankruptcy. A mortgage can end in foreclosure. But student debt is more sticky, and it turns out it can have big consequences in retirement.

Last year, Richard Minuti’s Social Security payments were cut by 10%.

The Philadelphia native was already earning only a bit over $10,000 a year, including some part-time work as a tutor. “I was desperate,” says Minuti. “Taking 10% of a person’s pay who’s trying to live with bills, that’s the cruelty of it.”

The Treasury Department was taking the money to pay for federal student loans he had taken out years before. Just before age 50, Minuti had gone back to college to get a second bachelor’s degree and a better job in social work and counseling. But the non-profit jobs he landed afterwards were lower paying, and he defaulted on the debt.

Student debt’s painful new twist

Minuti is one of the small but expanding group of seniors who are hitting retirement with a student debt burden. Over the past decade, people over the age of 60 had the fastest growing educational loan balances of any age group, according to the Federal Reserve Bank of New York. The total amount grew by more than nine times, from $6 billion in 2004 to $58 billion in 2014.

SeniorEduLoanGrowth

Only about 4% of households headed by people age 65 to 74 carry educational debt, according to a 2014 U.S. Government Accountability Office report. But as recently as 2004, student loans balances in retirement were close to unheard of, affecting less than 1% of this group.

Educational loans are very difficult to pay off when you are in or near retirement. Unlike a new college grad, there’s little prospect of years of rising salary income to help pay off the loan. That’s one reason older debtors have the highest default rate of any age group. (Also, most people who can’t pay off a loan will eventually age into being included among older debtors.) Over half of federal loans held by people over age 75 are in default, according to the GAO.

Student loan debts can’t be discharged in bankruptcy. And, as Minuti learned, federal tax refunds and up to 15% of wages and Social Security can be garnished.

This can be devastating, says Joanna Darcus, consumer rights attorney at Community Legal Services of Philadelphia.

“Most clients find me because the collection activity that they’re facing is preventing them from paying their utilities, from buying food for themselves, from paying their rent or their mortgage,” says Darcus, who works with low-income borrowers.

The number of seniors whose Social Security checks were garnished rose by roughly six times over the past decade, from about 6,000 to 36,000 people, says the GAO. Legislation from the mid-1990s ensured recipients could still get a minimum of $750 a month. At the time, this was enough to keep them from sliding below the poverty threshold. But to meet the current threshold, Congress would need to increase this to above $1,000 a month.

In other words, with enough debt, a Social Security recipient can be pulled into poverty.

“That’s pretty stressful for seniors when they understand that,” says Jan Miller, a student loan consultant who has seen a rise in his senior clients.

What’s behind the rise?

It’s not, despite what you might guess, only about parents who are taking on loans for their kids late in their careers.

Listen: How to decide if you should take out loans for your children’s education

In the GAO data, about 18% of federal educational debt held by seniors was from Parent PLUS loans for children or grandchildren. The remaining 82% was taken out by the borrower for his or her own education. (The GAO data differs from the New York Fed’s, showing lower total balances, so it may be missing some parental borrowing.)

SeniorLoansforOwnEdu

Darcus says many of her clients turned to education as a solution to unemployment and long-stagnant wages. Enrollment for all full and part-time students over age 35 increased 20% from 2004 to its recessionary peak in 2010, according to the National Center for Education Statistics.

“Among many of my clients, education is viewed as a pathway out of poverty and toward financial stability, but their reality is much different from that,” Darcus says. “Sometimes it’s their debt that keeps them in poverty, or pushes them deeper into it.”

And in recent years, both tuition and older debts have been especially difficult to pay, as home values and household assets took a hit in the Great Recession. Meanwhile, of course, the cost of higher education has soared. Tuition for private nonprofit institutions is up 78% in real dollars since 2004, according to the College Board.

What may be changing

New regulations and legislation this year may bring some relief to educational loan borrowers. The Senate in March introduced legislation to make private loans, but not federally subsidized loans, dismissible through bankruptcy.

For federal loans, more favorable income-driven repayment plans may be extended to up to 5 million borrowers this year. These plans, which have been growing in popularity since launching in 2009, adjust monthly payments according to reported discretionary income. The Department of Education is scheduled to issue new regulations by the end of 2015 that may allow all student borrowers to cap payments at 10% of their monthly income.

But it is unclear what percentage of that 5 million people are older borrowers who would benefit. Some borrowers have also complained that income-driven repayment plans require too much complex paperwork to enroll and stay enrolled. Borrowers who want to find out if they are already eligible for income-driven repayment plans can go here.

Parent PLUS loans would not be included in the new regulations. However, Parent PLUS loans can still be consolidated in order to take advantage of a similar, albeit less generous option, called the Income Contingent Repayment plan. This plan allows borrowers to cap their monthly payments at 20% of their discretionary income.

Still, some feel the best way to help seniors with student loan debt is to stop threatening to garnish Social Security benefits altogether. This spring, the Senate Aging Committee called for further investigations of the effects of student debt on seniors.

“Garnishing Social Security benefits defeats the entire point of the program—that’s why we don’t allow banks or credit card companies to do it,” said Sen. Claire McCaskill of Missouri in a statement.

Getting out from under

Richard Minuti was able to enroll in an income-based repayment plan last year with the help of a legal advocacy group. Because Minuti earned less than 150% of the federal poverty level, the government set his monthly obligation at $0, eliminating his monthly payment.

“I’m appreciative of that, thank God they have something like that,” Minuti says, “because obviously there are many people like myself who are similarly situated, 60-plus, and having these problems.”

But Deanne Loonin, director of the National Consumer Law Center’s Student Loan Borrower Assistance Project, says she doesn’t see the trend of rising educational debts ending any time soon. And some seniors will struggle with this debt well into retirement.

“I’ve got clients in nursing homes who are still having their Social Security garnished and they were in their 90s,” she says.

MONEY Kids and Money

Baby Proof Your Finances Before Becoming a Parent

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Sally Anscombe—Getty Images

7 things to plan for before your baby is born

Congratulations, you’re expecting! Now brace yourself: The cost of raising your newborn to age 18 has climbed to $245,340, according to federal estimates, and that’s before college costs. So use these months before the baby’s arrival to get ready for the financial challenges of parenthood.

Taking leave from work

Check if mom or dad’s employer offers any paid maternity or paternity leave. Only 12% of private-sector workers are entitled to paid family leave through their employer. Find out if you can supplement with vacation or personal days. Workers in California, New Jersey and Rhode Island can take advantage of state paid leave programs allowing for up to six weeks off with partial pay.

Next, consider unpaid leave, and whether you can afford it. You’re entitled to 12 weeks of job-guaranteed time off without pay under the Family Leave Act, as long as your company has 50 or more employees, you’ve worked there for at least a year (and 1,250 hours), and you live within a 75-mile radius of your workplace. Start planning now for how you’ll cover those weeks without a paycheck.

Things could change soon on the paid leave front. The Obama administration has earmarked $2 billion in federal funds for more states to develop family leave programs.

Planning for child care

Child care is a major budget item, often exceeding a family’s transportation, food and even college tuition costs. In 30 states plus the District of Columbia, the average annual expense of putting a baby in a day care center costs more than tuition at a state college, according to Child Care Aware. Charges can be as much as $14,508 for an infant or $12,280 for a 4-year-old.

Costs vary, so research the going rates in your area for large day care centers, home day care providers and nannies. Consider whether a relative is available to help, possibly for free or in exchange for other favors. Weigh child care costs against potential wages lost if either parent stays home with the baby.

Paying hospital bills

Although maternity and newborn care must be covered by health insurers under the 2010 Affordable Care Act, some older policies were grandfathered in without providing that benefit. This may be the case for younger mothers insured under a parent’s policy, for instance. So it’s a good idea to find out what your insurance pays for, what your deductible is and what you can do to hold out-of-pocket costs as low as possible.

Best to ask your insurer which health-care providers and hospitals are in your network, since going out-of-network may cost you a lot more. Check what prenatal tests are covered as well as the length of any hospital stay after delivery. Once you’ve chosen a hospital or birthing center, call the billing office ahead of time for an estimated bill and ask if there are unnecessary options you can decline to save money.

Budgeting for baby

With your estimates for medical bills, child care costs, and any unpaid family leave, you can start making a budget. This calculator from the U.S. Department of Agriculture helps figure what families with incomes similar to yours spend each year on major budget items. To keep costs down, resist the temptation to buy the latest baby gear; instead, look for gently used items to buy or hand-me-downs from friends and family, especially on expensive clothing, baby dressers or nursing gliders that will soon be outgrown or unneeded.

Build an emergency fund

Work on paying down any debt you may have so that your finances are as stable as possible before the baby arrives. Then prepare for the unexpected emergencies that tend to occur with a little one around. Try to stash away at least three to six months’ worth of living expenses so that you have a cash cushion.

Life insurance and estate planning

Life insurance protects your dependents by providing funds for immediate expenses if you should die, as well as money to replace the income that you would have earned. If you have a policy in place, double-check the beneficiary designation. Most parents name a spouse, who would use the life insurance money for taking care of the child. Or consider setting up a trust to benefit your child and naming the trust and trustee as beneficiary on the life insurance policy.

If you aren’t insured, lifehappens.org offers a calculator to figure out how much coverage you may need. Term life policies are generally less expensive and can serve parents’ purposes.

If you don’t have a will, you probably should make one, at least to designate a person to care for your minor child if you die. You can also designate a trustee to handle the child’s financial matters and an executor to pay your debts and manage your estate.

Take advantage of tax credits

Babies can bring tax breaks. The Child Tax Credit is worth up to $1,000 a year per dependent under age 17, depending on income. To qualify for the full credit, your taxable income must be $75,000 or less; $110,000 if married and filing a joint return.

You may be able to write off costs of child care that lets you work. The Credit for Child and Dependent Care can give back up to 35% of the costs, up to $3,000 for one child, or $6,000 for two or more. Expenses for babysitters, nannies, day care centers and after-school programs can all qualify for the credit.

Taking care of these financial moves before baby comes home will make you feel confident and in control as you embark on the adventure of parenthood.

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