MONEY Saving

This App May Let You Retire on Your Spare Change

Acorn App
Acorn

The new Acorns app rounds up card purchases and invests the difference for growth, with no minimums and low fees.

Americans spend $11 trillion a year while saving very little. So it makes sense to link the two, as a number of financial companies have tried to do over the past decade. The latest is the startup Acorns, which hopes to hook millennials on the merits of mobile micro investing over many decades.

Through the Acorns app, released for iPhone this week, you sock away “spare change” every time you use your linked credit or debit card. The app rounds up purchases to the nearest dollar, takes the difference from your checking account, and plunks it in a solid, no-frills investment portfolio. So when you spend, say, $1.29 for a song on iTunes, the app reads that as $2 and pushes 71¢ into your Acorns account. With a swipe, you can also contribute small or large sums separate from any spending.

The Acorns portfolio is purposely simple: Your money gets spread among six basic index funds. The weighting in each fund depends on your risk profile, which you can dial up or down on your iPhone. More aggressive settings put more money in stocks. But you always have some money in each fund, remaining diversified among large and small company stocks, emerging markets, real estate, government and corporate bonds. The app will be available for Android in a few weeks and through a website in a few months.

Why Millennials Are the Target

Micro investing via a mobile device clearly targets millennials, who show great interest in saving but have been largely ignored by financial advisers and large banks. Young people may not have enough assets to meet the minimum requirements of big financial houses like Fidelity, Vanguard, and Schwab. With Acorns, there are no minimums. There are also none of the commissions that can render investing in small doses prohibitively expensive. “We want small investors who can grow with us over time,” says Acorns co-founder Jeff Cruttenden.

This approach places Acorns in the middle a rash of low-fee, online financial firms geared at young adults—including Square, Betterment, Robinhood, and Wealthfront. Such firms hope to capitalize on young adults’ penchant for tech solutions and lingering mistrust of large financial institutions. Cruttenden says a third of Acorns users are under age 22. They like to save in dribs and drabs—and manage everything from a mobile device.

Acorns charges a flat $1 monthly fee and between 0.25% and 0.5% of assets each year. The typical mutual fund has fees of 1% or more. Yet many index fund fees run lower. The Vanguard S&P 500 ETF, which invests in large company stocks, charges just 0.05%. If you have a few thousand dollars to open an account, and the discipline to invest a set amount each month, you might do better there. But remember that is just one fund. With Acorns you get diversification across six asset classes—along with the rounding up feature, which seems to have appeal.

Acorns has been testing the app all summer and says the average account holder contributes $7 a day through lump sums and a total of 500,000 round ups. Cruttenden says he is a typical user and through rounding up his card purchases has added $521.63 to his account over three months.

A New Twist on an Old Concept

Mortgage experts tout rounding up as a way to pay off your mortgage quicker. On a $200,000 loan at 4.5% for 30 years your payment would be $1,013.38. Rounding up to the nearest $100, or to $1,100, would cut your payoff time by 52 months and save you $26,821.20 in interest. Rounding up your card purchases works much the same way—only you are accumulating savings, not cutting your interest expense.

Bank of America offers a Keep the Change program, which rounds up debit-card purchases to the nearest buck and then pushes the difference into a savings account. Upromise offers credit card holders rewards that help pay for college. But Acorns’ approach is different: the money goes into an actual investment account with solid long-term growth potential.

One possible drawback is that this is a taxable account, which means you fund the Acorns account with after-tax money. Young adults starting a career with a company that offers a tax-deferred 401(k) plan with a match would be better served putting money in that account, if they must choose. But if you are like millions of people who throw spare change in a drawer anyway, Acorns is a way to do it electronically and let those nickels, dimes, and pennies go to work for you in a more meaningful way.

Read more on getting a jump on saving and investing:

 

MONEY Kids and Money

The Best Thing You Can Do Now for Your Kid’s Financial Future

CAN'T BUY ME LOVE, from left: Patrick Dempsey, Amanda Peterson, 1987.
Your teens summer earnings can't buy love, but they can buy a bit of retirement security. Buena Vista Pictures—Courtesy Everett Collection

Open a Roth IRA for your child's summer earnings, and talk her through the decisions on how to invest that money, suggests financial planner Kevin McKinley.

In my last column, I extolled the virtues of opening—and perhaps even contributing to—a Roth IRA for a working teenager. In short, a little bit of money saved now can make a big difference over a long time, and give your child a nice cushion upon which to build a solid nest egg.

Besides underscoring the importance of saving for retirement early and regularly, opening a Roth IRA can help your child become a savvy investor (a skill many people learn the hard way).

Here’s how:

Make the Initial Contribution

Your child needs to earn money if he or you are going to contribute to an IRA on his behalf. For the 2014 tax year, the limit for a Roth IRA contribution for those under age 50 is the lesser of the worker’s earnings, or $5,500.

The deadline for making the contribution is April 15, 2015. But you can start sooner, even if your teen hasn’t yet earned the money on which you will be basing the IRA contribution. (If the kid doesn’t earn enough to justify your contributions, you can withdraw the excess with relatively little in the way of paperwork or penalties.)

For a minor child, you will have to open a “custodial” Roth IRA on her behalf, using her Social Security number. Not every brokerage or mutual fund company that will open a Roth IRA for an adult will do so for a minor, but many of the larger ones will, including Vanguard, Schwab, and TD Ameritrade.

As the custodian, you make the decisions on investment choices—as well as decisions on if, why, and when the money might be withdrawn—until she reaches “adulthood,” defined by age (usually between 18 and 21, depending on your state of residence). Once she ages out, the account will then need to be re-registered in her name.

Depending on which provider you choose, you may be able to make systematic, automated contributions to the IRA (for example, $200 per month) from a checking or savings account. To encourage your teen to participate, you might offer to match every dollar he puts in.

Have the “Risk vs. Reward” Talk

How an adult should invest an IRA depends upon the person’s goals and risk tolerance—the same is true for a teen. You can help set those parameters by pointing out to your child that, since he’s unlikely to retire until his 60s this is likely to be a decades-long investment, and enduring short-term downturns is the price for enjoying higher potential long-term gains.

You might also show him the difference between depositing $1,000 now and earning, say, 3% annually vs. 7% annually over the next 50 years—that is, a balance of $4,400 vs. a balance of $29,600. Ask your child: Which would you rather?

No doubt, your kid will choose the bigger number.

But you also want this to be a lesson in the risks involved in investing. You might talk about what a severe one-year decline of 40% or more might do to his investment and explain that bigger drops are more likely in investments that have the potential for bigger growth. Now how do you feel about that 7%?

Some teenagers will be perfectly fine accepting the risk. Others may be more skittish.

You also might explain that there are options that will not decline in value at all—such as CDs and money market accounts. But should he choose those safer options, he’ll be trading off high reward for that benefit of low risk. In fact, while his money will grow, it will likely not keep up with the rate at which prices grow (“inflation,” in adult terms). So his money will actually be worth less by the time he’s ready to retire.

Some risk, therefore, will likely be necessary in order to grow his money in a meaningful way.

Choose Investments Together

Assuming he can tolerate some fluctuation, a stock-based mutual fund is probably the most appropriate and profitable strategy—especially since a fund can theoretically offer him a ownership in hundreds of different securities even though he may only be investing a few thousand dollars. You might explain that this diversification protects against some of the risks of decline since some stocks will rise when others fall.

A particularly-suitable option might be a “target date” or “life cycle” fund. These offerings are geared toward a specific year in the future—for instance, one near the time at which your child might retire.

Target date funds are usually a portfolio comprised of several different funds. The portfolio allocation starts out fairly aggressive, with a majority of the money invested in stock-based funds, and much smaller portion in bond funds or money market accounts.

As time goes by—and your child’s prospective retirement draws nearer—the allocation of the overall fund gradually becomes more conservative.

The value of the account can still rise and fall in the years nearing retirement, but with likely less volatility than what could be experienced in the early years.

One low-cost example of this type of investment is the Vanguard Retirement 2060 Fund (VTTSX).

Of course, if you choose a brokerage account for your child’s Roth IRA, you have the option of purchasing shares in a company that might be of particular interest to your kid. Choosing a company that is familiar to your child may not only inspire her to watch the stock and learn more about it, but eventually profit from the money she is spending on “her” company’s products.

If you’re going to go this route, you should include a discussion on the increased volatility (for better or worse) of owning one or two stocks, rather than the diversification offered by the aforementioned mutual fund.

Kevin McKinley is a financial planner and owner of McKinley Money LLC, a registered investment advisor in Eau Claire, Wisconsin. He’s also the author of Make Your Kid a Millionaire. His column appears weekly.

Read more from Kevin McKinley:

 

MONEY

The Gamecocks May Rule the Gridiron This Weekend, but Aggies Get a Better College Deal

The college football season kicks off today. We looked at which of the schools in this weekend's faceoffs are the winners at offering great value educations.

  • Texas A&M v. University of South Carolina

    Left: Reveille cheers on the Texas A&M Aggies. Right: South Carolina Gamecocks mascot Sir Big Spur on his perch during the game.
    Brian Bahr/Getty Images (left)—Joe Robbins/Getty Images (right)

     

    When: Thursday Aug. 28, 6 p.m. EDT

    Oddsmakers’ pick to win: University of South Carolina, which is ranked 9th in the AP poll, ahead of A&M at 21.

    MONEY’s pick for college value: Texas A&M.

    Texas A&M is one of the most affordable and highest quality public universities in the country. MONEY estimates that the total cost of a degree for freshmen starting this fall will average $86,000—$14,000 less than a degree from the University of South Carolina. Also, Aggies earn, on average, about $52,000 a year within five years of graduation, according to data from Payscale.com. Gamecocks report earning only about $41,300.

  • Penn State v. University of Central Florida

    When: Saturday, August 30, 8:30 a.m. EDT

    Oddsmakers’ pick to win: UCF is given a slight edge thanks to its returning veteran defensive line.

    MONEY’s pick for college value: Penn State

    True, Penn State is expensive—a degree costs Nittany Lions an average of $142,000, or $41,000 more than Knights pay for their degrees—but Penn Staters are much more likely to graduate and earn healthy salaries. Penn Staters report earning almost $51,000 within five years of graduation, almost $10,000 more than UCF grads.

     

  • Florida State University v. Oklahoma State University

    140828_FF_Rivalries_FSUOSU_2
    Getty Images

     

    When: Saturday, August 30, 8 p.m. EDT

    Oddsmakers’ pick to win: FSU, last year’s national champion, is also the top-ranked team this fall, and has top-notch players at nearly every position.

    MONEY’s pick for college value: It’s a tie.

    Schools within about 30 places in our value rankings are very similar, as shown by the slight differences between Oklahoma State, ranked 194, and FSU, 223. OSU’s graduation rate of 62% is significantly worse than FSUs 75%. But OSU students who do make it through tend to earn more: $44,400 a year within five years, versus FSU’s average of $41,600.

  • University of Miami v. University of Louisville

    When: Monday, Sept. 4, 8 p.m. EDT

    Oddsmakers’ pick to win: Louisville beat the Miami Hurricanes soundly in the 2013 Russell Athletic Bowl. But oddsmakers are giving them only a slight edge in the rematch.

    MONEY’s pick for college value: Louisville

    MONEY ranks Louisville No. 382 for value in the country–not great–in part because of its painfully low graduation rate of just 51% (compared with 81% for the University of Miami.) But as a public school, Louisville charges Kentuckians, on average, less than $100,000 for a degree, about half what students at the private Miami typically pay. Those high costs are one reason we ranked Miami 536 out of 665 on our list.

     

  • University of Notre Dame v. Rice University

    When: Saturday, August 30, 3:30 p.m. EDT

    Oddmakers’ pick to win: Notre Dame, even though some its best players have been sidelines by an academic investigation. The Fighting Irish are ranked 17 by the AP poll; Rice is unranked.

    MONEY’s pick for college value: It’s a tie.

    You really can’t lose with either of this schools. MONEY ranks both Notre Dame and Rice equally at 20th place for value. They both have stellar graduation rates of more than 90%. And students go on to earn salaries in the mid $50,000s within five years of graduation, according to Payscale.com. Notre Dame costs more (a degree costs about $185,000, versus $150,000 for Rice), but the higher cost was balanced out by unusually high earnings reported by Notre Dame’s non-science majors.

    See more of Money’s Best Colleges:
    The 25 Most Affordable Colleges
    The 25 Colleges That Add the Most Value
    The 25 Best Colleges That You Can Actually Get Into

MONEY College

The 10 Top Colleges Students Really Want to Attend

Stanford University
If you're accepted at Stanford University, chances are you'll go. iStock

A new study of which schools high school seniors actually pick turns up prestigious names you know. Good thing these colleges also offer good value.

Not surprisingly, if you get into an elite college, chances are high you’ll say yes. But which of the elite schools are most likely to be students’ first choice? In a new analysis of acceptance and enrollment data, Stanford, MIT, Harvard, Yale, and Princeton top the list for this fall,

Parchment, a company that specializes in transferring student records from high schools and colleges, analyzed the college acceptances of 27,723 high school seniors who filled out the company’s survey this spring and summer. The company’s analysis, says chief executive officer Matthew Pittinsky, reveals which schools students are flocking to—and from.

Overall, the typical student in the study reported being accepted by three or four colleges. By comparing the schools the high schoolers got into with the ones they picked and rejected in the end, Parchment calculated a popularity score for 726 schools. Of the 265 colleges for which Parchment had records of at least 100 decisions, the 10 below are the most popular.

This report provides a slightly different and more up-to-date view of college popularity than the standard federal statistics on the percentage of admitted students who enroll. By those numbers, Harvard, with 81% of the admitted students enrolling in 2013, was the most popular elite school in the country. On this list, it’s No. 3.

Some of Parchment’s most popular schools are somewhat surprising given their official acceptance stats. Almost 100 members of the study group got into the University of Chicago and at least one other college, for example. And those students generally chose Chicago, where just about half of accepted students say yes, over almost every other school.

The good news is that these 10 most popular schools, while elite and expensive, also offer some of the best bangs for the tuition buck in the country, according to Money’s new college value rankings, which take into account net total costs after scholarships and grants as well as typical post-graduation earnings.

And some of the more expensive schools in the country appear to be students’ safety or backup schools in Parchment’s analysis. More than 100 members of the study group got into Drexel University (where only 8% of accepted students enroll) and at least one other college, for example. But most of those students opted for another choice.

In Money’s rankings of the 665 schools with graduation rates at or above the median and enough data for Money to examine, Drexel ranked 596th, in part because of its high cost. Money estimates a degree from Drexel, after all costs are included and grants or scholarship from the college are subtracted, will cost current freshmen about $218,000. That’s $72,000 more than a typical degree from highly popular Princeton University, for example, and $20,000 more than a degree from Chicago.

Popularity rank* % accepted who enroll College Money value ranking Net cost of a degree
1 76% Stanford University 5 $168,800
2 72% Massachusetts Institute of Technology 3 $154,700
3 81% Harvard University 6 $181,200
4 66% Yale University 15 $182,800
5 65% Princeton University 4 $146,200
6 63% University of Pennsylvania 11 $201,600
7 42% Duke University 32 $192,800
8 60% Columbia University 22 $206,800
9 53% University of Chicago 101 $188,800
10 58% Brown University 19 $192,000

*Of schools with at least 100 decisions.

MONEY College

Don’t Bash Ivy Leaguers: They’re Just as Greedy as Everyone Else

140826_FF_IVYLEAGUE
Michael Burrell—Alamy

In Excellent Sheep, William Deresiewicz slams the Ivy League for having a "finance-first" culture. But it's not just Harvard grads who run to high paying industries, it's everyone.

College entrants, beware. Choosing your dream school might be the worst decision you’ve ever made. That’s the message from William Deresiewicz, author of the recently released book Excellent Sheep. The ex-Yale professor’s latest work blasts the Ivy League, and other similarly prestigious schools, for turning young, idealistic learners into the titular livestock, who end their time in college by wandering aimlessly toward Goldman Sachs.

The heart of the argument, which Deresiewicz summarized last month in an article for The New Republic, rests on the fact that about a third of Ivy Leaguers go into big business (namely finance and consulting) and not his preferred areas, which include the clergy, the military, politics, and academia. Schools like Harvard may teach their pupils, sure, but all they learn are the “analytic and rhetorical skills that are necessary for success in business and the professions.”

In contrast, Deresiewicz says, public and lower-ranked schools like Wesleyan, Sewanee, and Mount Holyoke “have retained their allegiance to real educational values.”

So should Harvard‘s freshman class start filling out transfer applications? Not so fast. A closer look at the book’s claims reveals a sobering truth: Ivy Leaguers might be greedy little sheep eager to join the ranks of Wall Street—but no more so than students outside their hallowed halls.

In fact, the Ivy League simply is not unique in the way Deresiewicz wants it to be. Yes, it is true that 20% to 30% of elite college grads go into finance or consulting. But at Reed, a school Deresiewicz specifically uses as a model for a less money-hungry higher education, 28% of students went into business and industry—a category that includes consulting, finance, and other profit-heavy sectors—based on its 2014 alumni database.

That’s compared with 27.3% of Yale students who went into consulting or finance in 2012, 24.5% of last year’s Princeton class employed in finance, insurance, or professional services (including consulting), and 22% of Brown’s class of 2013 that entered finance, banking, or consulting. (These categories vary slightly since there is no standard method among colleges of grouping professions.)

Many public schools are no different. UCLA, a top ranked state institution, reports that 32% of its graduates go into business or consulting. Penn State, another public institution Deresiewicz mentions favorably, has even named its career services center after Bank of America. For those with an aversion to these industries, there aren’t many academic oases left.

Why do such a large portion of graduates everywhere rush to join the Morgan Stanleys of the world? Because they pay well and offer plenty of jobs. The financial services industry alone accounts for 7.9% of the economy and over $1.2 trillion; it’s so large that no small group of schools could ever hoard a significant share of it. According to data from NACE International and the U.S. Census, finance and insurance offer the 5th most jobs and the highest average salary of any sector.

Shockingly, students at Reed and UCLA seem about as likely to want a sustainable career and high incomes as their peers at Harvard. (And what’s wrong with that again?)

It’s also incorrect to assume that students at Ivy League schools are any less likely to go into more charitable trades. One might be surprised after reading Deresiewicz’s article to learn that the largest employer of recent Columbia graduates is not Goldman Sachs or J.P. Morgan, but Teach For America. Princeton, which has a reputation for sending grads straight to Wall Street, recently announced 22.6% of the 2013 graduating class is employed in the nonprofit sector.

Does this mean Ivy League schools aren’t often annoying and pretentious? Not at all (I should know, I went to one). But it does mean we shouldn’t label them as educationally deficient because their graduates behave just like everyone else. As MONEY’s own college rankings show, there are plenty of great schools, both in and outside the ancient eight. Choose based on educational quality, price, and yes, how employable students are after they graduate. And by those measures, the Ivies do pretty well.

MONEY Insurance

Why Millennials Resist Any Kind of Insurance

Young adults are the most underinsured generation of our time, which makes sense—up to a point.

Millennials are the most underinsured generation alive today—which makes a certain amount of sense. They have relatively few assets or dependents to protect. Still, the gaps in coverage are striking and offer further evidence that this generation has been unusually slow to launch.

Roughly one in four adults aged 18 to 29 do not have health insurance, twice the rate of all other adults, according to a survey from InsuranceQuotes.com, a financial website. (Other surveys have found lower uninsured rates, but this age group is still the most likely to go without.) Millennials are also far less likely to have auto, life, homeowners, renters, and disability coverage.

Young adults have always been slow to buy insurance. They often feel invincible when it comes to potential health or financial setbacks. But something additional appears to be at work here. This generation has famously overprotective parents who awarded them trophies just for showing up. Millennials may view moving back home or calling Mom and Dad for a bailout as their personal no-cost, all-purpose insurance plan.

Millions of young adults routinely boomerang home after college or get other family financial support. The trend is so broad that psychologists have given this new life phase a name: emerging adulthood, a period that lasts to age 28 or 30. MONEY explores this trend, and its costs, in the September issue reaching homes this week. Remarkably, the parents of boomerang kids don’t seem to mind providing the extended support.

A quarter of parents supporting an adult child say they have taken on additional debt; 13% have delayed a life event, such as taking a dream vacation; and 7% have delayed retirement, the National Endowment for Financial Education found. Yet 80% of such parents in a Bank of America Merrill Lynch survey say helping is “the right thing to do,” and 60% are willing to work longer, 40% to go back to work, and 36% to live with less if that’s what it takes to help their adult kids.

“Millennials have had very supportive parents throughout their life,” says Laura Adams, senior insurance analyst at InsuranceQuotes.com. “When you don’t have a fear of the unknown, a fear of life’s what-ifs, you are not likely to think about insurance.”

Yet young people overlook certain types of insurance at their peril—even though these policies may be relatively inexpensive. Most striking is how many skip health insurance, even though the Affordable Care Act mandates coverage and allows children up to age 26 to remain on a parent’s plan. Millions more young people now have health coverage as a result, recent studies have found, and their uninsured rate has dropped. But, still, as many as one in four still go without.

This may be classic pushback against a law young adults see as unfair. They understand that their insurance premiums subsidize the health benefits of older Americans who are far more likely to need care. Yet if Mom and Dad won’t pick up the bill, a visit to the ER can cost $1,000 or more for even a simple ailment. Things get much more expensive for broken bones and other treatments that even the young may need. Among other findings:

  • 64% of millennials have auto insurance, compared to 84% of older generations. Many millennials may have decided to skip car ownership. But if you rent a car or borrow one from your roommate, you have liability. It probably pays to have your own policy, which might cost $30 a month.
  • 10% of millennials have homeowners insurance, compared to more than half of those aged 30 to 49 and 75% of those 65 and older. Fewer millennials own a house, for sure. But this generation isn’t buying renters insurance either: only 12% have it. Renters insurance is cheap: $10 to $15 a month, and it comes in handy not only when someone steals your bike from the storage area but also if Fido bites a neighbor.
  • 13% of millennials have disability insurance, compared with 37% of those 30 to 49. This kind of coverage costs around $30 a month and may seem unnecessary. Yet one in three working adults will miss at least three months of work at least once in their life due to illness, Adams says, adding, “Anyone can throw out their back.”
  • 36% of millennials have life insurance, compared with 60% of those 30 to 49. Again, this coverage is relatively cheap: around $20 a month for $500,000 of term life. If you have no dependents you might skip it. But if you have debt that Mom and Dad co-signed, you should have enough coverage to retire the debt. It’s only fair, given your parents’ years of extended financial support.

 

 

MONEY Estate Planning

When Tragedy Strikes a Young Family

hospital bracelet on patient
Fuse—Getty Images

A cancer diagnosis prompts a financial planner to reflect on the fragility of life and the importance of preparing for the worst.

I have a client who is 39. He’s married and has two young children. He has an extremely successful career. He and his family are really hitting their stride.

One day he started to feel unwell. Eventual checkups led to a diagnosis of cancer. His wife called me on a Saturday morning to discuss the shock of what they were going through, and to get some basic sense of what to expect next, financially.

There’s no way to prepare yourself for this kind of devastating news. Brené Brown discusses this eloquently when she talks about “foreboding joy” — the sense we sometimes have, when things are going well, that something terrible will happen to us or someone we love.

This mental rehearsal for the worst-case scenario doesn’t make it any easier when we get tragic news; instead, it gets in the way of our truly feeling joyful and present in the moment right now.

What can give us a lot of peace of mind is financial preparation — the knowledge that our families will be taken care of if something happens to us. Here are some important elements of that planning:

  • Life Insurance: If you have young children who are depending on your income, a good 20- to 30-year level term policy is a solid foundation to help support your family through the children’s school years.
  • Disability Insurance: Being injured or sick and unable to work is often more financially catastrophic than death, since your expenses have likely increased to deal with your treatment, but your income has gone away. A good disability policy through your employer or through a private insurer is great protection, since it will provide at least part of your income while you’re unable to earn a living. This coverage is more expensive than life insurance, since it is far more likely a person will become disabled rather than die early, but disability insurance has substantial benefits.
  • Emergency Fund: A baseline amount of cash is the protective foundation to any financial plan. This isn’t because cash is such a great deal, since returns in savings accounts nowadays are minimal at best. Emergency funds are a great deal because they allow us to weather financial storms — for example, covering waiting period before the benefits on a disability insurance policy kick in — and ultimately to take advantage of opportunities when they present themselves.
  • Wills, Living Wills, and Powers of Attorney: If you have young children, this is essential. The issue isn’t if you or your spouse die; it’s if both of you die, since those kids will inherit life insurance proceeds, retirement plan benefits, and more. If you and your partner both get run over by the proverbial bus, you need to make provisions for who will take care of your children. You should make that decision, and not leave the courts to decide if you’re not around. Living wills allow you to state your end-of-life choices; while never easy to carry out, they always provide a level of peace to families who know they’re carrying out their loved one’s wishes.

A few weeks later, I had lunch with this couple. The husband was about to have surgery. “If I don’t wake up,” he asked, “what’s going to happen?”

It was the best of a bad situation: He had insurance. They had an emergency fund. They had the necessary end-of-life and estate-planning documents. Were he to not pull through, his wife and children would be in a position to try to find a new normal. (In fact, he did pull through, and he’s working on his recovery.)

The most important thing for any patient with a long-term illness is to focus on his overall health and mental outlook. Having financial plans in place allows a patient to set other worries aside. He can tell himself, “In the worst-case scenario, my family will be all right. Now I can focus on ‘What can I do to be well?'”

All our days are numbered. The question is, can you be present for the time that you have? The right financial plan can ease the way.

—————————————-

H. Jude Boudreaux, CFP, is the founder of Upperline Financial Planning, a fee-only financial planning firm based in New Orleans. He is an adjunct professor at Loyola University New Orleans, a past president of the Financial Planning Association‘s NexGen community, and an advocate for new and alternative business models for the financial planning industry.

MONEY credit cards

The Spending Mistake that Millennials Are Making

millennial holding credit card
To swipe or not to swipe? For millennials, it's not much of a question. Dimitri Vervitsiotis—Getty Images

Millennials prefer to pay with plastic over cash, a new CreditCards.com study finds—but all that swiping may be unravelling their budgets.

Millennials don’t shop like their parents—and increasingly, they don’t pay like their parents either. Studies have already shown that many of them have chucked the checkbook (if they’ve ever had one); and they’re more likely to forego cash as well, a poll released today by CreditCards.com found.

Asked how they typically pay for purchases under $5, 77% of people over 50 surveyed preferred cash to debit or credit, while just 48% of people between 18 and 29 use paper money. The fact that millennials are using cards to pay for even such small expenses suggests they’re probably using plastic for most purchases.

And when they’re swiping, this group also uses debit (37%) vs. credit (14%) by a larger margin than any other cardholder group.

What millennials may not realize is that choosing plastic—even if it’s debit—over paper could be costing them.

Research has suggested that we’re inclined to spend more when we swipe. A 2008 study published in the Journal of Experimental Psychology found that physically handing over bills triggers an emotional pain that actually helps to deter spending, while swiping doesn’t create the same aversion. As a result, the study found, cash discourages spending whereas plastic encourages it.

In addition, a 2012 study from The Journal of Consumer Research found that shoppers who pay with plastic focus more on the benefits of the purchase than the price, while those who pay with cash focus on price first. In other words, we’re more likely to make the decision to purchase an item when we know we’ll be charging it.

Further fueling our natural tendencies to spend more with plastic—a.k.a. “the credit card premium”—is the fact that many shops and bars mandate that you spend a minimum amount to use your card. So if you were planning to use the card anyway, you might pad your purchase to get to the minimum required.

All this spending on plastic also can cause you to rack up debt or overdraft fees, if you’re not swiping mindfully. And many members of Gen Y are not, it would seem.

For example, millennials are more likely than any other age group to overdraw their checking accounts, the Consumer Financial Protection Bureau found. About 11% of millennials overdraft more than 10 times a year, and these overdrafts were typically for small purchases under $24 and were paid back within three days. With the median overdraft fee equaling $34, borrowing $24 for three days is like taking out a loan with a 17,000% annual percentage rate, the study found.

Of course, we can avoid paying the credit card premium by just using cash. But if you won’t remember to go to the ATM, at least take a second to close your eyes the next time you’re about to buy something using plastic: Think about the price of the item and how it will impact your bank account. You might even give yourself a 24-hour cooling off period to think over any nonessential purchases.

Avoid overdrawing or getting in over your head in debt by reviewing your bank and/or credit card account online once per day, or by using an app like Mint.com, which lets you track all your accounts in one place. Also, consider setting alerts at your bank or credit card website to let you know when you’re approaching a certain balance—this can keep your spending in check.

Related:

Money 101: How Do I Figure Out My Financial Priorities?

Money 101: How Do I Create a Budget I Can Stick To?

MONEY College

What Your College Kid Isn’t Telling You About Money

More than half of students admit they keep financial secrets from Mom and Dad, a new survey finds. And one of the biggest may be how much debt they're racking up.

It is an American rite of passage. Little Johnny finally grows up, goes off to college, and starts handling money on his own. He probably spends a little too much, and racks up some debt.

Does Johnny tell mom and dad the truth—or keep it a secret?

More than half of college students (55%) admit they hide information from dear old mom and dad about all that money they are spending, according to the 2014 RBC Student Finances Poll. But only 33% of parents realize that’s the case.

Another disconnect: While 90% of parents claim to be on top of how much debt their kid owes, just 78% of students agree their parents are up-to-speed on their finances.

Welcome to a college course that is not really on the curriculum, but that every student is grappling with. Call it Secrets and Lies 101.

“It may be that a student doesn’t have as much money as their peers, and is trying to keep up with what their friends are doing,” says Christine Schelhas-Miller, a retired faculty member at Cornell University and co-author of Don’t Tell Me What To Do, Just Send Money: The Essential Parenting Guide to the College Years.

“Or they may be getting lots of credit card offers, and naively sign up,” Schelhas-Miller adds. “Then they’re not sharing this information with parents, because they’re afraid of getting into trouble.”

Of course, money disconnects between parents and kids are nothing new. In fact they are par for the parenting course, whether they revolve around tooth fairy money or allowance sizes.

The difference when kids reach college is that the sums involved are taken to the next level. Serious money, which can, in turn, have very serious consequences, like debt accumulation or poor spending habits that could dog families for years to come.

After all, the average Class of 2014 graduate with student-loan debt is in hock to the tune of $33,000, according to Mark Kantrowitz, publisher at Edvisors, a site about planning and paying for college. That’s the highest number ever.

The potential scenario, for a college student whose only financial-planning experience has been with Monopoly money? A couple of adviser Darla Kashian’s clients were gobsmacked to find out that their kid—unbeknownst to them—had blown through a significant inheritance in his last years of college, to the tune of tens of thousands of dollars.

“They didn’t know what he had done, and were astonished to find out,” says Kashian, who is an adviser with RBC in Minneapolis. “In their minds, he was using the inheritance to pay off his student loans, and now he was returning home with lots of debt. He was totally unprepared.”

Of course, students may suspect how badly they are screwing up financially. According to the RBC poll, 26% of college students admit they may be doing damage to their credit rating. Only 17% of parents think their little angels could possibly be doing such a thing.

Tough Talk

Such blind loyalty to one’s offspring isn’t cute; it’s actively harmful. But when it comes to such a delicate and emotional topic, many parents just don’t know where to start.

“It’s like the sex conversation: Parents are worried about how to even bring it up,” says Schelhas-Miller. “But they need to get over that hurdle, and think of it as a big part of their parenting responsibilities.”

Her advice: Arrange a pre-emptive strike, and have The Talk over the summer, before your kid even heads off to campus. Then arrange for regular money conversations throughout the school year—maybe once every couple of weeks, or maybe once a semester, depending on how responsible they are—to ensure budgets stay on track.

If you just avoid the subject and table the conversation for later, an unprepared college kid could stack up debt very quickly indeed, and it could be too late.

Kashian is a fan of online budgeting tools like Mint.com, a unit of Intuit, which can be set up to allow access to both parents and their kids. That, of course, requires plenty of trust from both sides.

“That way you can have real transparency, and open up a dialogue about the spending that is happening—instead of just shaming and screaming.”

More on student debt:

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