MONEY Kids and Money

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

sisters doing dishes
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 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.

More From NerdWallet:

MONEY Kids and Money

7 Bad Money Habits You’re Teaching Your Kids

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KidStock—Getty Images

Instant gratification isn't always a good thing.

Nobody’s perfect.

And if you are a parent, you’ve probably seen some of your imperfections in broad relief as your child imitates them. Where did he learn that tone of voice? Did she really just tell the pediatrician her favorite food is french fries?

Kids and teens are watching everything we do, and they pick up on how we manage money. And much as we want them to develop good financial habits, telling them about budgeting and compound interest is unlikely to make up for showing them that we buy on impulse and (hopefully) still manage to keep a roof over our heads. Because we presumably want to do a good job teaching our children healthy attitudes about money, what should we be doing?

Sam X Renick, entrepreneur and financial educator, has some ideas — and he reached out to other financial experts for input as well.

Renick said the overriding goal is to teach kids to be thoughtful about what they do with money. We want them to understand money is one of the tools you use to make dreams come true. What can you do with money? You can save it, invest it, spend it or give it away. And managing money well has the potential to make your life happier and less stressful.

It’s easier said than done, of course, but some parents make it even harder by accidentally modeling the very behaviors we hope our kids will avoid. Here are some of the bad money habits we may be inadvertently passing onto our kids.

1. Shopping without a list.

This is an invitation to waste money — and groceries, and a lot of us don’t need an invitation. It also makes us especially vulnerable to impulse buying. After all, what’s one more item that’s not on the list? For children, especially, it blurs the line between planned purchases and impulse buys. (And lists in general help people stay organized. Teaching children to use lists can help in many areas of life.)

2. Buying on impulse.

We don’t do well at teaching delayed gratification. Advertisers make it even harder. Ever seen an Internet “flash sale” that lasts only a few hours? Or notice the price changes on an item you HAVE been watching. It’s frustrating to see that deliberating a bit might mean paying more. Of course, long term, these “flash sales” will tempt you to buy things you probably don’t need and likely didn’t plan for because you couldn’t stand to miss the killer deal. The Internet and TV work hard to tempt us to buy on impulse. Show your child how advertisers try to manipulate us to make decisions that might not be in our best interests long-term. “Sleep on it” is a great habit to encourage.

3. Teaching entitlement.

Why are we going out to dinner and letting you order anything you want? Because you are a great kid! You… told the truth, got a good grade or got a soccer-participation certificate. Or you didn’t, and now you’re disappointed. Either way, a treat is in order. (Treats are not wrong, by the way. You can explain to your child that treats are in your budget. But the people who are most experienced handling the money and who have the most knowledge of the family’s finances will make the major decisions. Translated, this means the adults pick the restaurant and tell the children which entrees they may choose from or what the price limit is.)

4. Focusing exclusively on the now.

Even if you are putting away money for vacations, if that is invisible to kids, they are not learning about it. “Let’s eat at home and save the difference in what it would cost for vacation,” can help make your intentions clear. You can even save the money in a jar so they can see it. It’s easier to say “we can’t afford it,” because YOU know that you can’t afford both lots of dinners out and a trip to Disney, but your kid may understand only that you can’t afford to go through the drive-thru, rather than that you are consciously choosing to direct your money toward something else — that you are delaying gratification.

5. Speaking in terms of dollars, not percentages.

Renick says it’s important for kids to learn that not only is a nickel worth more than four pennies, it’s worth 20% more. It’s easy not to care about a penny, but 20% seems worth worrying about. And it is. Would they prefer to earn $20 for a chore or just $16? It’s still 20%, and it’s worth saving. “The concept is if you get in the habit of taking care of small details (financial choices) the habit and behavior will carry through to larger financial choices,” Renick said. Go ahead and save where you can — and show your kids that little things add up. (And hopefully, when they are in the workforce, that 401(k) match offered by your kid’s employer will seem too big to pass up.)

6. Giving them “spending money.”

The idea behind this can be smart — hoping they will learn to prioritize. That’s a good goal, certainly. But Renick would suggest giving them money to manage… and rewarding saving if they show some restraint. He gives as an example a child with $100 to spend (or save) at Disneyland. What if you told a child that he or she could KEEP any money not spent at the park? Do you think he or she would care more about getting the most value for the money and would check carefully to see what concessions cost before ordering?

Routinely giving them the money may be a problem as well. Kids can earn money. Renick said his father used to tell him that he could have anything he wanted — as long as he was willing to work for it. Having to work can also help teach the value of money, when you begin to think about whether thing you need or want is really worth the time you’ll spend earning the money to buy it.

7. Indulging in spendy habits, like a daily Starbucks or cigarettes.

Despite what we say, we show them that the gratification today is more valuable to us than the sacrifice involved in putting some of that money in a 401(k) or saving it for a family vacation.

What Should We Be Teaching Them?

Talking to kids about money can feel awkward and difficult, especially if our own parents didn’t tell us much (or overshared, resulting in kids worrying about money).

Tim Hamilton, founder and managing director of FinancialFamilies.com, a fee-only service on Ohio, said it can also be difficult if the parents are not on the same page. “I work with the occasional couple where one spouse was provided for endlessly as a child and the other spouse occasionally, or regularly, went without. . . . At the very least, the couple needs to effectively communicate their perspectives on an ongoing basis,” he said in an email.

On one hand, you don’t want children to become so worried about money that they cannot spend. Another financial educator told Renick that her sibling, who has a high income now, still shops at thrift stores and often wears ill-fitting clothes as a result (not taking those clothes to a tailor, either), because spending is uncomfortable and upsetting. Nor do you want them to not give money a thought — seeing a credit card as a license to spend and failing to budget or save.

So what does a healthy attitude look like? Renick asked financial educator Leslie Girone, and here’s how she defines financial success: “doing something you love, having supportive family and friends, and not worrying about money 24/7.” Hopefully, we can model that, too, while we’re trying to explain the magic of compound interest, the pitfalls of too much debt, or the importance of keeping up to speed on your credit.

More From Credit.com:

MONEY Kids and Money

5 Things New Grads Need to Hear From Their Parents (Even if They’d Rather Not)

college graduate with parents
Getty images

Young adults say they wish they had started saving sooner.

One of the hardest things about letting a newly licensed driver leave the house in your car is this: They don’t know what they don’t know (but if you taught them to drive, you may have some ideas). They will learn, perhaps the hard way, and you won’t be there to offer warnings and commentary.

Finances are a lot like that. You’ve taught them, they’ve graduated from high school or college and now they are entering the real world — and figuring out that there are some gaps in their knowledge. Maybe their parents didn’t tell them, or maybe they weren’t listening when the parents did, but here’s what newly minted adults — asked via social media — told us they wished they had known more about money.

1. Compound Interest

They now wish they’d put baby-sitting and lawn-mowing money into retirement accounts. The young adults who responded to our question were big believers in putting away money early. They just wish they’d known sooner.

2. How to Invest

They want to know what they should be doing with the money they sock away. Some wish they had known how to invest in college. Some of them remember hearing their parents or grandparents talk about getting crushed in the market during the recession. But by now, the markets have rebounded, and they know that those who held on when the ride got scary have been rewarded.

3. How Taxes Work

Some states have income tax, and others don’t. Some municipalities tax the money you earn. Sales tax can be twice in a new state what it was in one’s home state. Who knew? And is there a way to figure out how much to take home in one’s paycheck after the deductions? They wish they understood taxes a little better.

4. Credit & Credit Score Management

“My dad always told me never to get a credit card,” said one. “My friend actually told me that I needed it to eventually get a house, new car, etc. So I’m building credit now when I could have been doing that throughout high school and college.” Others said they are learning late about precisely what it takes to build or rebuild credit. (Interestingly, no one complained that parents didn’t warn them about debt — parents are presumably doing a great job there.)

Experts suggest checking your credit scores and credit reports regularly so that when you do decide to take on debt (perhaps to buy a home or car), you can qualify for the best rates. Regularly monitoring your credit can also clue you in to possible identity theft if there is a large, unexplained change in your scores.

5. Buying vs. Renting

Whether they’re shopping for a home, car or furniture, new grads want to feel confident they’re making a good decision. Some wonder if renting to own is a good compromise.

There are a good many resources online to help with understanding all of these topics, and the millennials who described the gaps in their knowledge seem fully capable of finding them. Still, it can be confusing because some of the information is conflicting or just plain wrong. And none of it answers the question, “Mom, Dad … what do you think?”

More From Credit.com:

MONEY financial advice

How Vanguard Founder Jack Bogle Invests His Grandchildren’s Money

Ahead of Father's Day, Bogle also talks about the investment advice he gives—or doesn't give—his children.

Just a few days before Father’s Day 2015, MONEY assistant managing editor Pat Regnier interviewed John C. “Jack” Bogle, the founder and former CEO of Vanguard, the world’s largest mutual fund company. The elder statesman of the mutual fund industry—and a pioneer in index investing—talked about the investing advice he gives his children, one of whom runs a hedge fund, along with how he invests, and doesn’t invest, on behalf of his grandchildren. Look for an in-depth interview with Bogle in an upcoming issue of MONEY.

Read next: Where are Most of the World’s Millionaires?

MONEY Kids and Money

70% of Rich Families Lose Their Wealth by the Second Generation

ARRESTED DEVELOPMENT with Jessica Walter and Portia de Rossi
Carin Baer—20th Century Fox Licensing/Everett Collection Scene from Arrested Development with Jessica Walter and Portia de Rossi

A little honesty might help preserve the family fortune.

When Stephen Lovell used to visit his grandparents as a kid, it was like entering the world of Cole Porter or The Great Gatsby.

People dressed in tuxedos and sipped cocktails. They owned boats, airplanes, a hobby farm. Not to mention a lavish mansion in Ontario, Canada, and a summer home in Southampton, New York.

He estimates that his grandfather, who founded the John Forsyth Shirt Co, had a fortune of at least $70 million in today’s dollars. But through a combination of bad decisions, bad luck, and alcohol dependency, the next generation squandered that money.

“I think about it all the time,” says Lovell, a financial planner in Walnut Creek, California.

Indeed, 70% of wealthy families lose their wealth by the second generation, and a stunning 90% by the third, according to the Williams Group wealth consultancy.

U.S. Trust recently surveyed high-net-worth individuals with more than $3 million in investable assets to find out how they are preparing the next generation for handling significant wealth.

“Looking at the numbers, 78% feel the next generation is not financially responsible enough to handle inheritance,” says Chris Heilmann, U.S. Trust’s chief fiduciary executive.

And 64% admit they have disclosed little to nothing about their wealth to their children.

The survey lists various reasons: People were taught not to talk about money, they worry their children will become lazy and entitled, and they fear the information will leak out.

When I asked financial planners why the wealthy are so poor at passing along money smarts and why second- and third-generation heirs turn out to be so ham-handed, the answers were surprisingly frank.

A sampling: “Most of them have no clue as to the value of money or how to handle it.” “Generation Threes are usually doomed.” “It takes the average recipient of an inheritance 19 days until they buy a new car.”

Yes, the statistics may be grim. But just because most wealthy families see their fortunes evaporate within a couple of generations does not mean yours will. Some strategies to avoid it:

Talk Early and Often

You may think you are encouraging hard work by not disclosing wealth to your kids, but that really just fosters ignorance.

If you have just never talked about money, get over it, and give your kids a crash course in financial literacy. Many financial institutions, including U.S. Trust, offer specialized learning materials and courses to get heirs up to speed.

That goes for grandkids, too: Instill smart money lessons in them, and you have pushed family wealth forward another 30 or 40 years.

Discuss the Will

If you are ready for true transparency, take it up a notch and bring up the elephant in the room: the will.

“Parents and grandparents should communicate the whats and whys of their will in a group setting, with all their children present, long before the will is read,” says David Mullins, a planner in Richlands, Virginia.

That way, you can hash out any issues as a family beforehand. It is better than after the fact, when the patriarch or matriarch is not around to explain or make adjustments, and things devolve into all-out legal war.

“Trust me, siblings will find out who got what,” says Mullins. “Without proper communication, this can destroy families.”

Create a Roadmap

Almost one-quarter of baby boomers think their kids will not be able to handle wealth properly until the ripe age of 40. And almost half of wealthy individuals over 70 agree.

That is why you should give your heirs a financial roadmap in the form of a family mission statement, advises U.S. Trust. You can lay out what you expect in terms of spending, saving, and giving back, as well as pass along strategies for building wealth.

Stephen Lovell wishes his mother had that kind of roadmap.

“How did my mother blow it?” he says. “She just didn’t know any better. And now we all live with that regret, every day.”

MONEY Kids and Money

The 3 Most Important Money Lessons My Dad Taught Me

father letting son swipe credit card at cash register
Monashee Frantz—Getty Images

Many of our financial dos and don'ts are instilled by parents at an early age. Here's what my father passed along to me.

One of the responses I often hear from clients toward the end of a financial planning meeting is, “This sounds good. I’m going to talk to my dad about it.”

For many of us, our mothers and fathers have played a profound role in shaping our financial habits—so much so that we still discuss our plans with our parents well into our adult lives. Whether it’s deciding where to invest retirement savings, how much to pay for a first home, or how much of each paycheck to invest in a 401(k), we sometimes go to our parents to help make decisions and to doublecheck we’re on the right path.

These conversations with many of my clients have me thinking about the values and habits my father instilled in me at a young age. Three very powerful lessons come to mind:

Live Within Your Means

On my eighth birthday, my father began to teach me how to live within my means. As I write those words, it sounds funny, even to me. He sat me down and taught me about an allowance. He was going to provide me with a weekly stipend that I would later come to realize was my means. I was going to have a set amount of money that I could spend on anything I’d like. The only catch was that once I spent it all, I couldn’t buy anything else until the following Friday when I received my next allowance. At the age of 8, I began to learn how to budget, how to save, and how to spend wisely.

Plan For the Future

At 14, my father took me to his bank’s local branch to open my first savings account. We sat down at the desk with the bank manager and I shared that I had saved $370 and I needed a place to keep it so it would grow. Entering high school, I knew I wanted two things on the day I turned 16: a driver’s license and a car. If I was going to make them both happen, I was going to need a plan. Dad and I worked out a savings plan to help me save the money I earned from a part-time tutoring job. It took me a bit longer to save up for my first car than I anticipated, but planning and saving to reach a future goal is a valuable life lesson—one I share with my clients every day..

Start Today

When I was 16, I sat down again with Dad to learn about a Roth IRA, retirement planning and perhaps, most importantly, compound interest. I learned that by starting early and investing, my money could grow. By opening an investment account and saving into my Roth IRA with the possibility to earn compound returns, I could potentially become a millionaire when I was older—a crazy thought for a 16-year-old. We charted out a simple savings plan to invest a portion of each paycheck I earned—a savings and investing program I follow to this day.

On the occasion of Father’s Day, I thank you, Dad, for instilling many of my financial values and habits at a young age—habits that will continue to shape the decisions I make for years to come.

Read next: 3 Financial Lessons For Dads on Father’s Day

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Joe O’Boyle is a financial adviser with Voya Financial Advisors. Based in Beverly Hills, Calif., O’Boyle provides personalized, full service financial and retirement planning to individual and corporate clients. O’Boyle focuses on the entertainment, legal and medical industries, with a particular interest in educating Gen Xers and Millennials about the benefits of early retirement planning.

MONEY 401(k)s

The Painless Way New Grads Can Reach Financial Security

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Steve Debenport—Getty Images

You don’t need to be sophisticated. You don’t need to pick stocks. You don’t need to understand diversification or the economy. You just need to do this one simple thing—now.

A newly minted class of college graduates enters the work world this summer in what remains a tough environment for young job seekers. Half of last year’s graduates remain underemployed, according to an Accenture report. Yet hiring is up this year, and as young people land their first real job they might keep in mind a critical advantage they possess: time, which they have more of than virtually everyone else and can use to build financial security.

Saving early is a powerful force. But it loses impact with each year that passes without getting started. You don’t need to be sophisticated. You don’t need to pick stocks. You don’t need to understand diversification or the economy. You just need to begin putting away 10% of everything you make, right away. And 15% would be even better.

Consider a worker who saves $5,000 a year from age 25 to 65 and earns 7% a year. Not allowing for expenses and taxes, this person would have $1.1 million at age 65. Compare that to a worker who starts saving at the same pace at age 35. This worker would amass half that total, just $511,000. And now for the clincher: If the worker that started at age 25 suddenly stopped saving at age 35, but left her savings alone to grow through age 65, she would enjoy a nest egg of $589,000—more than the procrastinator who started at age 35 and saved for 30 more years.

That is the power of compounding, and it is the most important thing about money that a young worker must understand. Those first 10 years of a career fly by quickly and soon you will have lost the precious early years of saving opportunity and squandered your advantage. That’s why, if possible, I advise parents to get their children started even before college.

Once you start working, your employer will almost certainly offer a 401(k) plan. More than 80% of full-time workers have access to one. This is the easiest and most effective way to get started saving immediately. Here are some thoughts on how to proceed:

  • Enroll ASAP Some companies will allow you to enroll on your first day while others require you to be employed for six months or a year. Find out and get started as soon as possible. Most people barely feel the payroll deductions; they quickly get used to making ends meet on what is left.
  • Have you been auto enrolled? Increasingly, employers automatically sign you up for a 401(k) as soon as you are eligible. Some also automatically increase your contributions each year. Do not opt out of these programs. But look at how much of your pay is being deferred and where it is invested. Many plans defer just 3% and put it in a super safe, low-yielding money market fund. You likely are eligible to save much more than that and want to be invested in a fund that holds stocks for long-term growth.
  • Make the most of your match A big advantage of saving in a 401(k) is the company match. Many plans will match your contributions dollar for dollar or 50 cents on the dollar up to 6% of your salary. This is free money. Make sure you are contributing enough to get the full match.
  • Keep it simple Choosing investment options are where a lot of young workers get hung up. But it’s really simple. Forget the noise around large-cap and small-cap stocks, international diversification, and asset allocation. Most plans today offer a target-date fund that is the only investment you’ll ever need in your 401(k) plan. Choose the fund dated the year you will turn 65 or 70. The fund manager will handle everything else, keeping you appropriately invested for your age for the next 40 years. In many plans, such a target-date fund is the default option if you have been automatically enrolled.
  • Take advantage of a Roth Some plans offer a Roth 401(k) in addition to a regular 401(k). Divide your contributions between both. They are treated differently for tax purposes and having both will give you added flexibility in retirement. With a Roth, you make after-tax contributions but pay no tax upon withdrawal. With a regular 401(k), you make pre-tax contributions but pay tax when you take money out. The Roth is most effective if your taxes go up in retirement; the regular 401(k), if your taxes go down. Since it’s hard to know in advance, the smart move is to split your savings between the two.
  • Get help An increasing number of 401(k) plans include unbiased, professional third-party advice. This may be via online tools, printed material, group seminars, or one-on-one sessions. These resources can give you the confidence to make decisions, and according to Charles Schwab young workers that seek guidance tend to have higher savings rates and better ability to stay invested for the long haul in tough times.

Read next: 6 Financial Musts for New College Grads

 

 

MONEY Kids and Money

The Risky Money Assumption Millennials Should Stop Making Now

man walking tightrope
Kazunori Nagashima—Getty Images

Nearly half of millennials believe family will ride to the rescue if they don't save enough to retire. Here's a better plan.

As if we needed more evidence that millennials have been slow to launch, new research shows that a heart-stopping 43% are counting on financial assistance from loved ones if things go poorly with their retirement savings.

It’s not clear exactly who these loved ones may be—their boomer parents, or perhaps successful friends or even their own children. But counting on others for retirement security is almost always a mistake. No other generation has anywhere near this level of expectation for family aid, according to a Merrill Edge survey of Americans with investable assets of $50,000 to $250,000. Just 9% of those outside the millennial generation are counting on a friends-and-family backstop, the survey found.

Boomers are famously under-saved; many will struggle themselves to keep from becoming a financial burden to others. Yet their millennial offspring, accustomed to unprecedented support from Mom and Dad that spawned a new life phase called emerging adulthood, continue to believe they have a rock-solid back-up strategy. In a MONEY poll this spring, 64% of millennials said before marrying it is important to discuss any potential inheritance with a mate. Only 47% of boomers agree.

Certainly, some millennials will inherit financial security. Wall Street estimates about $30 trillion will flow in their direction the next few decades. But the average millennial will receive almost 10 times less than they expect—and many won’t receive a thing, and So the best retirement backstop is one they build for themselves.

Fortunately, the current crop of retirees has left a blueprint, according to the Merrill Edge report. Both retirees and pre-retirees overwhelmingly describe the ideal retirement as one that is stress free and financially stable. Yet 66% of Americans expect to be stressed about money in retirement because of the way they have saved during their working years. Those who are already retired express less concern; nearly three quarters believe they will have enough money to last through retirement. Only 57% of folks still working feel that way.

Retirees say that contributing to a retirement account (63%) and paying down debt (68%) while working were among the most important parts of their life strategy. Working Americans today are engaged in these activities at a lower level: 57% contribute to a retirement account and 54% are paying down debt, Merrill Edge found. Meanwhile, 42% of today’s retirees also invested outside their retirement accounts, vs. just 24% of workers today.

Another source of stress: Workers today have less confidence in a government solution, probably reflecting their more pessimistic view of Social Security. Only 28% of workers are counting on help from the government when they retire, vs. 41% of retirees who now say they rely on government assistance.

Three quarters of workers say they will rely on their own savings to fill financial gaps in retirement. Yet it is unclear they will have enough to make a big difference. In the survey, about one in three workers say they would be embarrassed if close friends knew the details of their finances. Much of this points to millennials’ overriding belief that Mom and Dad will make it all okay—and that might be the case for some. But to be safe, young workers should start now saving 10% of everything they earn. Four decades of compound growth is the only backstop they’ll ever need.

 

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