It is nine letters long, (not legal weed), and causes investors' blood to boil.
Inflation. We really want some inflation. Now, if possible.
Macroeconomic forces are not top of my mind all the time. A couple of weekends ago, for instance, my wife and I played poker and drank beer on our friend’s rooftop patio. Our son Luke, clad in his new miniature gondolier outfit, crawled between our legs as one person after another told us how cute he was. That night Luke held onto one of my fingers while I gave him his midnight feeding. Later my wife and I slipped into his room for a few moments to watch him sleep.
I can tell you that at no point during our perfect summer day did the word inflation pop into our heads. We went to sleep thinking just how lucky we were to have such a beautiful son, rather than dwelling on the fact that we face an inflationary climate that is hostile to the economics of our new family.
We aren’t strangers to what economists call “headwinds.” Mrs. Tepper and I graduated from the same really expensive private college in 2008, just as the nation was mired in the worst recession in 80 years. We attended college (and later graduate school) as state governments across the country drastically cut higher education spending, which meant higher costs, which meant that we incurred a combined six-figures student loan marker. And entering the job market in the teeth of negative economic growth means we’ll be playing catch-up for years and years.
Given all that we (and Americans, generally) have endured since 2008, it might seem strange that I would ask for higher inflation. When the prices of goods rise quickly, the Federal Reserve is apt to raise interest rates. Higher interest rates make it more expensive to purchase a house, or borrow for anything. Don’t I want to own a house? What’s wrong with me?
For a little bit of context, let’s back up and look at where inflation has been over the past six years. If you look at the core price index for personal consumption expenditures (or core PCE), inflation is rising at an annual rate of 1.5%. In fact ever since Lehman Brothers declared bankruptcy it has barely budged over 2%.
Even if you look at a broader inflation metric, like the consumer price index, prices have risen at 2.1% or lower for almost two years.
What does this mean?
For one thing, wage growth has stagnated at around 2% since we left school, and job growth, while picking up lately, has been relatively slow. Weak job creation and small pay increases means that people have less money to spend, which means fewer jobs and the cycle goes round and round.
So more economic growth (spurred on by more borrowing and spending) would help alleviate low wage growth, and help us ramp up our weekly paychecks. But it would also do something else. It would help us pay down our student loan debts.
Super low inflation is bad for people who have debt. Right now Americans owe more than $1.1 trillion in student loan debt. That means people our age are receiving raises that aren’t that high and have to confront a record level of debt before their careers really get going. With so much of our take-home pay earmarked for debt service, no wonder housing isn’t a priority, or affordable, for millennials (or the Teppers).
Of course, this kind of talk scares our parents (and rich people), who own bonds and other assets designed to preserve wealth instead of create it. Having already endured years of low interest rates, they really don’t want their bond portfolio to be hit by an inflation jump.
To which I say, tough. Many boomers entered the job market as the economy was expanding and college was affordable. Their children did not.
Luke has this one toy that he loves. It’s a sort-of picture book for infants consisting of a crinkly material, and he loves nothing more than smashing the thing between his hands and feet. In 17 years, he’ll want a car—and then four years of college.
I realize that the costs of these things will rise—prices always rise. It would just be nice if our salaries rose enough to pay for them.
Taylor Tepper is a reporter at Money. His column on being a new dad, a millennial, and (pretty) broke appears weekly. More First-Time Dad:
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Get your teen started off now in a Roth IRA for a big payoff down the road, says financial planner Kevin McKinley.
A few weeks ago, I wrote about how to figure out how much money you need to become financially independent, and how the process could help you teach your kids to reach the same goal.
But talking the talk only goes so far. You can walk the walk by helping them start saving for retirement in…drumroll, please…a Roth IRA.
Why a Roth IRA?
For most younger workers, the Roth IRA is preferable to a traditional IRA for two reasons.
The first is that contributions to a Roth IRA can be withdrawn at any time for any reason with no taxes or penalties whatsoever. Therefore, that portion of the account can be taken out for other expenses, such as college or a down payment on a house, without a severe cost.
The second reason the Roth IRA rules is that younger workers typically are in a low tax bracket, and therefore don’t need the deduction that a traditional IRA provides. But once they get to retirement, all the money in the Roth can generally be withdrawn with no taxes at all.
How much your kid can save
Children of any age can open a Roth IRA account—as long as they have legitimate earned income. Flipping burgers and bagging groceries certainly counts, but so does self-employment like babysitting and yard work, especially if it’s done for someone other than you.
Just make sure to keep track of what your kid makes so you know how much can be deposited in to the Roth IRA. For 2014 the contributions to a Roth IRA are limited to the lesser of the kid’s earnings, or $5,500.
Technically, for the 2104 tax year, the money doesn’t have to be deposited until April 15, 2015, the usual deadline for the federal income tax filing.
What you can do to encourage him
Congratulations to you—and your child—if you can convince her straightaway to put her hard-earned paychecks into an account that isn’t meant to be tapped for another 50 years.
But even if you can’t immediately get your teen into the savings habit, you may be able to motivate her by using some of your own money. The money for the Roth IRA doesn’t necessarily have to come from her. She can spend her earnings, and you can deposit into the Roth on her behalf.(Just remember that your deposits then become her money, and she’s free to do with it as she pleases once she reaches adulthood.)
Also, keep in mind that the source of the deposit to your child’s Roth IRA doesn’t have to be an all-or-nothing proposition. You may want to tell your kid that you will match every dollar she contributes with one of your own.
For further motivation, try showing your child how time can turn a relatively-small amount of money into a small (or large) fortune.
For instance, let’s say you and your child deposits $5,000 into a Roth IRA when he’s 15 years old, and it grows at a hypothetical annual rate of 6% per year.
By the time he’s 65 (and it will happen sooner than he thinks), the account would be worth over $92,000.
But if he has the earnings and discipline required to set aside $5,000 in to the same account every year until he turns 65, the Roth IRA will provide him with a tax-free total of $1.6 million.
And if that doesn’t get his attention, no amount of walking and talking will.
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
The Federal Trade Commission alleges that Amazon made it easy for kids to make unauthorized in-app purchases — and hard for their parents to get refunds.+ READ ARTICLE
Related: “$350 for a Kindle App?!”
The FTC says Amazon let children run up hundreds of dollars in unauthorized charges for in-app purchases. Here’s how to make sure your kid’s screen time doesn’t cost you a small fortune.
If you’ve been using your Kindle Fire as an electronic babysitter, beware that it might cost you more than a real babysitter. In a new lawsuit, the Federal Trade Commission says that Amazon has wrongfully billed some parents for unauthorized app purchases made by children.
How? Many free apps marketed towards kids let users make additional “in-app” purchases as they play the games. For example, download the free app “Tap Zoo,” and your kid can fill a virtual zoo with imaginary animals and habitats. Sometimes those items cost imaginary money – but other times, they cost real money, the FTC says.
The federal agency cites one customer hit with $358 on game bills (it doesn’t say which game.)
We’ve heard this story before: In January, Apple agreed to settle charges that it too had billed parents for unauthorized charges on kids’ games. But Amazon has pledged to fight the FTC’s lawsuit, arguing that the company has responded promptly to customer complaints, refunded purchases by kids and improved parental controls since launch.
As technology evolves to make it easier and easier to spend money, kids’ apps will likely remain a battleground. But in the meantime, here’s how to keep your kid’s virtual zoo running under budget.
The simplest solution: Turn off in-app purchases entirely.
On Kindle Fire, go to settings for the Amazon Appstore and turn off “in-app purchasing.” Apple products will let you disable the ability to install apps, delete apps or make in-app purchases. Just go to settings and tap “enable restrictions.”
At the very least, set up a password for in-app purchases.
Require that all users type a password before making any purchases – and make sure it’s a different password than the one you use to unlock your device. On Apple products, go to settings and tap “enable restrictions.” On Kindle Fire, go to settings and adjust “Parental Controls.” But here’s the problem: On Kindle Fires, each time you enter your password to buy something—say your kid badgers you into letting him buy that one new animal—the FTC says there’s a window of time when (15 minutes to an hour) when anyone using the device can continue making in-app purchases.
The FTC also argues that the password prompt is vague and doesn’t explain how much you’ll be billed. So enter that password with caution.
Do a little research before you let your kid buy an app.
Maintain a healthy suspicion of “free” apps. Oftentimes, free apps make money by collecting data about users, showing users advertising, or encouraging in-app purchases. But it’s not always easy to tell which apps will let your kid run up a huge bill. As of 2012, about 84% of the apps that let kids make in-app purchases were advertised as “free,” according to an FTC survey. Before you buy an app, read the full description to see if it allows in-app purchases. Also read reviews for the app, and try it out yourself before you let your kid play with it.
Switch to airplane mode or turn off Wi-Fi.
“Airplane mode” is a setting that turns off Wi-Fi – making it impossible to buy or download apps, or do anything else online. Quickly turn it on before handing over your device, and your kid should be able to play without making any new purchases. On Apple products, you can turn on airplane mode or turn off Wi-Fi under settings, or by swiping from the bottom of the screen and tapping the airplane icon. On Kindle Fire, you can turn on airplane mode by going to “Quick Settings” and then “Wireless & Networks.”
Did your kid run up a huge bill on a mobile device? How did they do it? Did you get a refund? Do you have any advice for other parents?
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American teens lag behind their Chinese counterparts when it comes to money smarts, according to a new study.
Even the Sisters K say leaving the kids behind to earn a living can be tough. Cheer up, Kim, Khloe, and Kourtney. Research finds there's an upside to balancing mommy duties with office demands.
Who knew I had something in common with the Kardashians? Surprise, surprise: The incredibly rich are not immune to working-mommy guilt.
While promoting their new kids’ clothing line on CNBC’s Closing Bell yesterday, Kim, Khloe, and Kourtney were asked to respond to the recent comments by PepsiCo CEO Indra Nooyi that women can’t have it all.
Whether or not you believe that what The Sisters K do actually counts as work—it certainly pays better than my job as an editor here at Money—their comments echo some of what I have heard from my fellow employed moms of the real world.
“There are so many times I just didn’t want to get up and work on something, I just wanted to be at home with my baby,” Kim said.
“I used to feel so guilty every time I left,” added Kourtney, who’s preggers with her third kid.
I guess this is proof that every working mom has had regret about leaving their child with a caregiver at some point or another. (Though if I had three, I would probably feel elated about going to work, not guilty.) But for those of us who are the family breadwinners and those of us who simply love our careers, we know we have to power through.
One way to beat back the guilt is to focus on the upside. And the good news is that there is a lot of research showing the benefits of being a mom who works (and this is not to vilify those who stay at home, who have the tougher job by my estimation). Remembering these four things helps me get through the tough mornings when my toddler breaks down in tears when I leave:
1. Working moms are healthier. A 2011 study from the University of North Carolina at Greensboro found that moms who work rate themselves in better health overall—more likely to say they feel “excellent”—than those who stay at home with their kids. This was confirmed by a 2012 paper from the University of Akron that looked at full-time working moms at age 40 who went back to work early on after having their children. These mamas reported higher levels of energy and mobility. I have to wonder, though, if either of these studies took into consideration what my husband and I have termed “daycare disease”—the family cold we pass between us from October to April.
2. Working moms are happier. Both the North Carolina and University of Akron studies showed that working moms exhibited fewer signs of depression than SAHMs. “Work is good for your health, both mentally and physically,” said Adrianne Frech, the lead researcher on the Akron study by way of explanation. “It gives women a sense of purpose, self-efficacy, control, and autonomy.” Additionally, a Gallup poll from 2012 found that moms who don’t work have higher levels of worry, depression, sadness, anger, and stress than those who do—which may speak to just how much harder that job really is.
But you don’t need a study to tell you that you’ll actually be happier if you’re doing something you like. I mean, just take it from an expert like Kim Kardashian: “You know, for me, and I think I can speak for my sisters, it makes us feel good when we are out working and we can provide something for our friends and products that, you know, we can’t find that we really want. And it just makes you feel productive.” Of course, a lot of this depends on being in the right job.
3. Your kids will not suffer for it. In a recent Pew study, 60% of Americans said children are better off when a parent stays home to focus on the family, but there’s a lot of data showing the opposite. Kids of working moms turn out okay—and possibly better depending on what research you’re looking at.
A 2010 review from the APA’s peer-reviewed Psychological Bulletin looked back at 50 years worth of studies on the children of working parents and found that those whose moms went back to work before the child turned three weren’t any more likely to exhibit behavioral or academic problems than those of moms who stayed at home. Among lower-income families, the kids actually did better on academic metrics. “Overall, I think this shows women who go back to work soon after they have their children should not be too concerned about the effects their employment has on their children’s long-term well-being,” said the study’s lead author, psychologist Rachel Lucas-Thompson.
Other recent research has shown similar results, including a 2014 study out of Boston College which found that kids of middle-class working moms are as well prepared for kindergarten as childen of moms who don’t work, and children of lower-income working moms are better prepared.
4. Your kids will still love you. For her 1999 book Ask the Children, Ellen Galinsky, president of the Families and Work Institute, interviewed 1,000 kids ages 8 to 18 and found that a mom’s work status wasn’t a factor in how the children assessed their parents. In fact, the relationship between the parent and child was more important than whether or not mommy went to a job.
Me, I’m reminded of this every day at around 6 p.m. While it’s awful to leave my kid in the morning—well, some mornings anyway—there’s nothing like the giant hug and sloppy kiss that’s waiting for me when I get home.
Hiring help can make sense for new parents—even poor-ish ones. The next installment in a series of dispatches on being a new dad, a Millennial, and (pretty) broke.
On a normal Saturday, my son Luke wakes up around 6 a.m.—which means I wake up at 6 a.m. Mrs. Tepper, half-asleep, is still recovering from our son’s late-night feeding four hours earlier. So 6 a.m. is my time.
The next hour is filled with jungle-themed activity mats, frozen teethers and a $23 French rubber giraffe named Sophie that is seemingly standard-issue in my neighborhood despite its outrageous price tag.
By 9 a.m., Luke is back asleep and my wife and I make breakfast, do the laundry, and walk the dog. If we’re lucky we’ll have the bed made, the dishes done, and Luke’s things assembled in some kind of order by the time he wakes up at 10 a.m. (Of course his cadre of stuffed animals will be strewn across the floor by 10:15 a.m.) Around 11 a.m. we dress him, assemble his diaper bag and set off on errands. (Grab the dry cleaning, pick up dog food, stop by the farmer’s market.) By 1 p.m., we’ve returned to our disheveled apartment, and Luke goes down for another nap. By 2 p.m. we can’t remember our names.
We used to love Saturdays.
After almost five months of little sleep and spending almost every waking hour —and these seem to be growing exponentially—on our kid or our household tasks, we’ve come to the conclusion that certain unintended expenses needed to be incurred if we want to save our sanity and stay on speaking terms.
In short, we decided that we needed a maid.
There’s an economic argument in favor of paying someone else to do mundane chores. With only so many hours in a day, every second you’re rinsing dishes or walking dirty clothes to the laundromat is a second you could have used to further your career, to spend more quality time with your kid, or to actually have an adult conversation with your spouse.
As Catherine Rampell wrote in The New York Times last year:
Hiring people to work essentially as servants smacks of classism or insufficient self-reliance. Scrubbing your own toilet or doing your own laundry supposedly builds character, or something to that effect. And while it’s certainly good to have these skills in a pinch, it’s probably not a wise financial decision to use them all the time if you could instead be engaging in other activities that improve your—and your family’s—well-being.
Still, I didn’t like the idea of hiring someone to clean our apartment. While the Mrs. and I make about double the U.S. median household income, we live in one of the most expensive cities in the world. We also already budgeted $400 a week for child care so Mrs. Tepper (who makes more than I do) can return to work.
Money wasn’t the only reason. I enjoy washing the dishes. The soft rhythm of a basic task is almost meditative, especially after a long day. I enjoy cooking dinner. I may be a tad sentimental, but feeding my family healthful meals is a source of pride.
I could intellectualize the rationale for hired help, but some part of me had a hard time accepting that we were that type of family. Maids seem like a lifestyle choice for richer people.
But this hang-up was just something I had to get over for my family’s sake.
So we hired a maid. She was recommended by a friend and stops by for four hours every two weeks at a cost of $120 a month. That’s $15 an hour—which is a lot cheaper than a $500 an hour divorce lawyer.
Since Mrs. Tepper and I don’t go to the movies anymore—which costs north of $12 a ticket in New York—and eat out less frequently these days, we found room for the additional expense (wistfully) in our entertainment budget.
Of course we’re still sleep-deprived most of the time, and we can’t afford a personal chef or a dog walker or wash-and-fold laundry service. But thanks to a relatively small investment, when Luke rolls over these days, it’s onto a recently mopped floor that we didn’t have to mop ourselves.
And I must say, coming home to a spotless apartment and a happy wife sure beats returning to a spotless apartment and an unhappy wife.
Taylor Tepper is a reporter at Money. This column appears weekly.
More First-Time Dad:
Want your kid to win Wimbledon? Start shelling out $30,000 a year.
On July 1, two-time Wimbledon champ Rafael Nadal, age 28, was bested by 19-year-old Australian player Nick Kyrgios—the youngest man in the draw, and the first teen in nearly a decade to knock off a No. 1-ranked player at a Grand Slam tournament.
If that youthful feat fuels your kid’s dream of tennis stardom, then get ready to open your wallet. In the United States, families of elite tennis players easily spend $30,000 a year so their kids can compete on the national level, says Tim Donovan, founder of Donovan Tennis Strategies, a college recruiting consulting group. That can start as early as age 11 or 12. At the high end, Donovan says, some parents spend $100,000 a year.
On what, you might ask. Here’s the breakdown:
- Court time. Practice makes perfect, but practice can be expensive, especially if you need to practice indoors in the winter. In Boston, where Donovan is based, court time costs about $45 an hour. In New York City, court time can run over $100 an hour.
- Training. Figure $4,500 to $5,000 a year for private lessons, plus $7,000 to $8,000 for group lessons—in addition to the aforementioned court fees to practice on your own.
- Tournaments. National tournament entrance fees run about $150. Plus, you have to travel to get there. Serious players will go to 20 tournaments a year. Donovan estimates that two-thirds of the tournaments might be a few hours away, but elite athletes will need to fly to national events six or seven times a year. Want to bring your coach with you? Add another $300 a day, plus expenses.
- School. You’ve already racked up $30,000 in bills. But if your kid is really serious, you might also spring for a special tennis academy. Full-time boarding school tuition at Florida’s IMG Academy costs $71,400 a year.
So what’s the return on investment? While most parents don’t expect to see their kids at Wimbledon, many still hope that tennis will open doors when it comes time to apply to college. But the reality is that athletic scholarships are few and far between. In 2011-2012, only 0.8% of undergrads won any kind of athletic scholarship, says Mark Kantrowitz, publisher of Edvisors.com.
Opportunities are particularly limited for boys. Donovan notes that because of Title IX—which requires that schools provide an equal number of scholarships for men and women—a Division I college with a football program might offer eight full tennis scholarships for women, but only half as many for men, because male scholarships need to go to the football players.
Bottom line: If you spend $30,000 a year hoping your tennis star will go to college for free, you’ll probably be disappointed with your ROI.
“Recipients of athletic scholarships graduate with somewhat less debt than other students but not significantly so,” says Kantrowitz. “The main benefit of athletic scholarships is providing access to higher-cost colleges without increasing costs, moreso than reducing the cost of a college education.”
That’s where Donovan comes in: For $3,500 to $10,000, Donovan Tennis Strategies provides different levels of assistance with the college application process. Oftentimes, Donovan’s clients are able to pay full tuition but want additional help leveraging tennis to get their kids into better (and more expensive) schools.
The strategy can pay off. According to Donovan, recruited athletes have a 48% higher chance of admission, sometimes even with SAT scores that are more than 300 points lower than those of non-athletes. “The coach can go in and significantly advocate for somebody and change the outcome,” he says.
So if you’re a parent to a budding tennis star, can you foster his or her talent for less? The IMG Academy does offer scholarships to promising young athletes whose parents can’t pay full freight, and the United States Tennis Association offers some grants and funding. But ultimately, players need to log hours on the court to get good, and that costs money.
“The more you’re playing, the better you’re going to be,” Donovan says. “That’s pretty well documented … and that adds up over time.”
Your ability to retire well depends not on how much you save but on how much you spend, says financial planner Kevin McKinley.
As you’re celebrating our nation’s independence this weekend, you might want to spend some time—between your first and second hot dogs, maybe?—contemplating how well you’re doing in achieving your own financial independence.
Your ability to reach a comfortable retirement has less correlation than you might expect with how much money you earn, how much money you already have, or how you invest that money.
Instead, it depends upon how much you spend—and how much you plan to spend in the future. The more money you spend now and going forward, the more you will need to accumulate to support your lifestyle.
A simple formula can tell you not only how much you will need, but also how close you are now to getting where you want to be.
What’s your destination?
Start by looking back on the last month to see how much you’ve spent. You can do this by reviewing your checking and credit card account statements, or you could use an expense-tracking program like You Need a Budget or Mint going forward a month.
Once you have a handle on a typical month’s spending, subtract any Social Security payments you and your spouse or partner expect to receive in retirement (find estimated amounts at the Social Security website). You can also subtract any pension payments you know will be coming your way.
Then multiply the remaining amount by 200. The result is what you will need to have in savings, investments, and retirement accounts before you can retire comfortably.
Or, in a formula:
(Monthly Spending – Expected Monthly S.S./Pension) x 200 = Target Retirement
So, if you’re spending $4,000 per month and can expect $1,500 per month in Social Security retirement benefits, your net required liquid assets are $2,500 x 200, or $500,000.
Are you on track?
You can use a similar variation of this formula to see how you’re doing toward your goal. Again, start with your typical monthly expense amount. Here’s where you should be…
In your 20s: Current Monthly Spending x 10
In your 30s: Current Monthly Spending x 25
In your 40s: Current Monthly Spending x 50
In your 50s: Current Monthly Spending x 100
(By the way, in case you plan on winning the lottery well before retirement age and want to be financially free forever, you’d better hope you hit the Mega Millions, since you’ll need about 300 times your monthly expenses.)
If your net worth isn’t where it should be, don’t panic. Instead, go back to your list of expenses to see what is less important to you than your long-term financial security, and try to reduce or eliminate it. A quick way to increase your net worth and reduce your spending is to bump up your deferral in to a pre-tax retirement plan, like an IRA, 401k, or 403b. The money is still yours, but since you’re taking home less, you’ll be forced to live on a little less (and you can always change it back).
Bonus: Saving more for retirement this way also means you’ll pay less in taxes each year.
Will your kids be on track?
Best of all, this process can help you provide a priceless lesson to your children.
Many of us want our children to have high-paying jobs in adulthood so that they can cover their own living expenses with as little parental assistance as possible.
But simply by learning that it’s easier to spend less money than it is to make more, our children will be free to pick an occupation based on what they find most fulfilling, rather than the one that just fills up their bank accounts fastest. Minimizing their expenditures also gives them more flexibility to change careers, move to a more desirable location, go back to school, or stay home to care for a child (our grandchildren!).
Most importantly, spending less money allows them to save more of what they earn—so that they’ll be able to reach their own financial independence much more quickly.
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.
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