MONEY Kids and Money

Why More Parents Are Talking to Toddlers About Money

toddler counting pennies on table
Derek Henthorn—Corbis

The money talk is occurring as young as age 3. Here's how that could change the world.

Talking about money at home has long been a taboo subject. But the Great Recession changed that, and now we’re seeing evidence of more open discourse—and maybe even a payoff.

Nearly two-thirds of parents with children between the ages of 4 and 12 pay their kids an allowance to teach them basic money management lessons, according to a survey from discount website couponcodespro.com. On average, these parents began teaching their kids the value of money at age 3, the survey found.

In a similar study two years ago, the American Institute of Certified Public Accountants found about the same percentage of parents using allowance as a teaching tool. But they did not start as early. In that study, kids typically received allowance by age 8. In another study, fund company T. Rowe Price found that 73% of parents talk to their kids regularly about money—and about one in five stepped up the frequency since the financial crisis.

Talking more openly about money inside the household is one of the recession’s silver linings. Many families experienced such a financial blow that they could not avoid the discussion. But even setting aside the recession, starting earlier and talking more frequently makes a lot of sense. In the online world, kids begin making money decisions earlier than previous generations, and when they come of age they will have far fewer safety nets. They need to begin saving with their first paycheck and never stop.

The most common money conversations between youngsters and parents revolve around saving in a piggy bank (73%), working for pay around the house (66%), budgeting for things the kids want (57%), and finding bargains at the grocery store (29%), according to the couponcodespro.com survey. The survey also found that the average weekly allowance across the age group was $13.50, which is higher than the often-recommended rate of 50¢ to $1 per week per years since birth.

The survey also found that 73% of parents paying an allowance admit to buying their kids treats, a practice that can undermine the value of paying allowance in the first place. “Sweets and clothes I can understand,” says Nick Swan, CEO of couponcodespro.com. “But buying them toys for no reason when they are being given an allowance can backtrack on everything they are trying to teach their children about money.”

Still, money talk may be beginning to make a difference. In a recent survey of Gen Z teens (aged 13 to 17), Better Homes and Gardens Real Estate found that half say they know more about money than their parents did at their age. Two-thirds attribute their knowledge of money matters to discussions in the home, and two in five credit discussions in school. Three in five have already begun saving.

This youngest generation also seems to be managing credit cards more adeptly than their older cousins, the Millennials. These are encouraging trends that, if they persist, will help the economy long term and may just insulate this youngest generation from another crisis.

 

 

 

TIME Saving and Spending

This Law Would Immediately Improve Your Credit Score

A high-ranking lawmaker is pushing for Congress to redraw the road map for how credit scores are calculated, with an eye toward giving a little more breathing room to people who have fallen on tough times financially.

California representative Maxine Waters, the highest-ranking Democrat on the House Financial Services Committee, is introducing legislation that would modify the Fair Credit Reporting Act in several ways.

It would sharply reduce the amount of time negative information stays on your report. Right now, if you default on a loan, have a debt go into collections or similar, you’re stuck with that black mark for seven years. Waters’ proposed law would shave three years off that and wipe the slate clean after four years. The proposal also would “reverse” defaults on private student loans if the borrower makes nine on-time payments in a row.

“It probably is time to look at the seven-year reporting period and find out what the data really says,” says Gerri Detweiler, director of consumer education at Credit.com. “The Fair Credit Reporting Act was passed in 1970 before credit scoring was as pervasive as it is today,” she points out. A penalty that might have seemed reasonable back then might be too punitive today now that credit scores play into everything from how much interest you pay on a credit card to whether or not you land a job. (Waters also wants to stop employers from using credit checks when screening applicants.)

Waters’ bill also would erase debts that are settled for less than the original balance due, including medical debts. Fair Isaac, the company behind the widely-used FICO score, also made some recent tweaks to its scoring formula, including a similar change that won’t penalize people for late payments if the debts have been paid off. The company also said it will give less weight to medical debt, following research conducted by the Consumer Financial Protection Bureau which found that medical debt doesn’t automatically indicate lower creditworthiness.

Some credit experts are skeptical of the impact and warn of unintended consequences and higher costs to borrowers. “This will result in higher rates for everyone,” predicts Amber Stubbs, managing editor at CardRatings.com. “If [banks] are less able to accurately predict risk, they will proactively increase the cost of loans across the board.”

And John Ulzheimer, credit expert at CreditSesame.com, writing in Business Insider, says that Waters’ bill places “unreasonable” demands on financial services providers.

Consumer advocates, though, are happy about the plan. “A lot of reform [is] needed,” Chi Chi Wu, a lawyer with the National Consumer Law Center, tells the Washington Post.

“She’s obviously thought through the thorny issues,” says Linda Sherry, director of national priorities for Consumer Action. “I commend Maxine for this proposal,” she says, although she acknowledges not all the proposed changes would be likely to make it into the final law. “It seems unlikely such a bill would pass in this House,” she says.

MONEY Kids and Money

The Surprising Thing Gen Z Wants to Do With Its Money

Teen in front of home
Getty Images

More than half of teens would give up social media for a year and do double the homework if it guaranteed they’d be able to buy a house when they're older.

During the Great Recession, home ownership took a beating as the ideal for the American dream. The median home nationally lost a quarter of its value, prompting adults of all ages to adopt other elusive goals—like retiring on time for boomers or working on their own terms for millennials.

Just 65% of Americans own their home, down from 69% pre-bust. And four out of five Americans are rethinking the reasons they’d want to buy a house in the first place. But Generation Z—also known as post-millennials, born after the 1990s Internet bubble— seems to prize home ownership like no generation since their great-grandparents.

An astounding 97% of post-millennials believe they will one day own a home; 82% say it is the most important part of the American dream, according to a survey of teens age 13 to 17 by Better Homes and Gardens Real Estate. More than half would give up social media for a year and do double the homework if it guaranteed they’d be able to buy a house.

This yearning stands in starkest contrast to the aspirations of millennials, older cousins who pretty much created the sharing economy and in large numbers prefer to rent. The housing bust and foreclosure epidemic scarred millennials, probably for life, as some watched parents and neighbors lose everything. In a key part of this generation—heads of households age 25 to 34—renters increased by more than 1 million in the years following the crisis, while the number who own a home fell by 1.4 million.

Post-millennials saw the carnage, too, though at a tender age that left them more confused than traumatized. Where millennials hardened and vowed never to repeat the errors of their parents, post-millennials sought the comfort of family and togetherness, says Sherry Chris, CEO of Better Homes and Gardens. “Many of these Gen Z teens were 7 to 11 years old when the recession hit,” Chris said. “At that age, children equate home with stability.”

The innate quest for stability leads them to prize a family home above things like going to college, getting married, having children, or owning a business, according to the survey. And the dream appears firmly grounded in reality. Chris observed that today’s teens have more information than any previous generation at their age and show early signs of financial awareness. Asked for an estimate of what they might spend on a house, the 97% who aspire to be owners gave an average response of $274,323—strikingly close to the median home value of $273,500.

Half say they know more about money than their parents did at their age. Two-thirds attribute their knowledge of money matters to discussions in the home, and two in five credit discussions in school. Three in five teens have already begun saving, the survey found. Post-millennials, on average, aim to own a home by age 28—three years earlier than the median age of first-time homebuyers reported by the National Association of Realtors.

These are encouraging findings. A home remains most Americans’ single largest asset, and while the housing bust will have lingering effects, home prices nationally tend to rise every year—and have been trending up again the past few years. Not all of the news is good: Only 17% of post-millennials believe stocks are the best long-term investment; half prefer a simple savings account, TD Ameritrade found in a survey that defines the generation as slightly older (up to age 24).

But the TD survey also found that post-millennials have half the post-college credit card debt of millennials. And the Better Homes survey suggests that our youngest generation is at last learning more about money at an early age, which is the goal of a broad public-private financial education movement. A generation of financially adept youth who begin to save and gather assets that will grow for four or five decades is the surest way to avoid another meltdown and solve the retirement savings crisis.

Related:
Why Gen X Feels Lousy About the Recession and Retirement
Our Retirement Savings Crisis—and the Easy Solution

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:

 

TIME Financial Planning

This Reality TV Show Can Save Your Retirement

Getty Images

Can a reality TV show fix your troubled family finances?

What does it mean that a reality TV show is in the works, aiming to help couples sort through their money woes? Yes, a major cable station is working up a “family finance” pilot that amounts to a Biggest Loser for folks who have never seen a credit offer they didn’t like.

Have producers of this popular genre simply run out of material? I mean after Here Comes Honey Boo Boo, what’s left? Or is it that Americans’ inability to manage money has become so big and obvious, and economically debilitating, that there is now an appetite for a tough-love TV program that puts struggling families on a debt diet?

Think Real Housewives, only everyone is broke. Or maybe Hell’s Kitchen, only the host has a heart. No one will get voted off this island, or hear the words “you’re fired.” But there might be some Jersey Shore sniping when couples confront their ridiculous spending and credit practices.

The show in development may never get to air. I only know about it because I played a small role in casting. From what I could see anecdotally, young families in the U.S. have issues that appear far worse than any data points or averages suggest.

One young Texas couple took a big hit when the husband lost his job and found work at half the pay. The wife went to work. She hates her job and not being a full-time mother. The arrangement is causing all kinds of stress in the relationship. Yet they haven’t taken the time to do some simple math: They are spending more on childcare than she makes each month. Quitting her job would solve a few big problems right away.

A Chicago couple in their early 40s has household income of $200,000 and zero savings. They have a big mortgage that’s killing them, some unusual ongoing healthcare expenses that will be with them for years, and they are sending two kids to costly private elementary and high schools. Again, stress is driving them apart. But doing a little math, it seems clear they could fix it all just by choosing the decent public schools in their affluent neighborhood and putting the savings toward retirement, mortgage payments and healthcare. Even they wonder about the private school sacrifice. But they haven’t made the tough decision because of appearances.

These are the kinds of choices that undermine the financial security of millions of families all the time. I’m rooting for this show to get to air, and if it does I hope it won’t devolve into tears, arguments and an ornery host with a whip. A lot of troubled family finances really are easily fixed through simple math and not-so-simple discipline. If a reality TV show can illustrate that, it will have been worth more than all the silly Kardashian episodes ever aired.

 

 

TIME paying with plastic

This Is Why Cash Will Never Be King Again

Jonathan Kitchen—Getty Images

Only 1 in 10 adults always carry cash. Where does this leave the rest in an emergency? Just fine, thank you.

I never leave home without some cash in my pocket. My young adult children rarely carry so much as a penny. What about emergencies? Have I failed as a parent?

You might say so. Yet walking about town cashless isn’t the crime it once might have been. Really. Forty years ago my kids would have been arrested as vagrants for being penniless in public—like Rambo or Adam Trask in Steinbeck’s East of Eden. Today, almost everyone does it.

That’s no exaggeration. Only 10% of adults say they always have cash on them, according to a survey from vouchercloud, a coupon website. A startling 73% say they never or rarely carry hard currency. They rely on plastic to pay for everything.

That strikes many as irresponsible. But the world has changed a great deal since an apparently destitute John Rambo strolled into the fictional town of Hope, Wash. after the Vietnam War. You’ll never again need a quarter for a phone call; someone nearby surely has a charged cell phone. Even cabs take a credit card, and if you really need cash the ATM isn’t far away.

Meanwhile, carrying cash can be a pain. Those who eschew it cite worries about theft, losing their wallet and coming into contact with germs, and the greater convenience of plastic. Often cited pitfalls of going cashless are that you are prone to spend more and lose track of your spending. But even those truisms have been turned at least partly on their head.

Yes, surveys still show that people using only plastic spend around 15% more than those who use cash. In the vouchercloud survey, 84% of plastic users said they often spend more and 76% said they lose track of where their money goes. But this is becoming less the case all the time.

For many, especially young people, the opposite is true. They are so unaccustomed to using cash that when they have hard currency it burns a hole in their pocket. They view it as extra and spend it quickly. Meanwhile, they don’t keep a bulging George Costanza billfold full of receipts; by relying on plastic they can more easily track all their spending through monthly statements or a service like Mint.com. Cash actually works against their budget and their ability to track what they spend.

These are considerations that folks past 35 vastly under appreciate. A well-managed debit or credit card (low fees, no revolving balance or overdrafts) may be preferable to cash for many people. That said carrying some cash remains a smart strategy even if you never use it.

A growing number of shops won’t accept plastic for purchases under $5; others offer a discount for cash. Some popular restaurants, bars and shops don’t take plastic of any kind. Vending machines and self-service car washes need quarters or bills. Cash makes it easier to split a bill with friends or chip in for a present at the office. Roadside towing often requires cash. How will you tip the bellhop? What about the tollbooth that doesn’t take EZ Pass? You get the idea. Cash is still king, but in far fewer places.

 

 

 

TIME Saving and Spending

Your Gym Membership Is a Waste of Money

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Hero Images—Getty Images

It’s bathing suit season again, and that means gyms are shedding dollars from their membership prices faster than we’re ditching long pants and sleeves. According to Charles Tran, founder of credit card comparison and personal finance site CreditDonkey.com, June is a good month for gym discounts, especially on daily deal sites. “I’ve been seeing discounts of about 35% to 60%,” he says. “In June, you have more negotiating power when everybody else wants to enjoy the outdoors.”

Since most gyms offer memberships to couples at a discounted rate, it might seem like joining with your partner would be the best way to score a good deal.

Weirdly, it isn’t, and you’re probably throwing money away as a result.

A new study finds that when couples sign on to do something together — start a savings account, diet, get fit and so on — their level of commitment defaults to the least-motivated member of the pair. A lot of people probably think the more conscientious partner would set a good example for and inspire their boyfriend, girlfriend or spouse, but it turns out they’re not the one wielding the primary influence in these situations.

“Self-control is essentially a social enterprise,” writes Hristina Dzhogleva, an assistant professor of marketing at Boston College and lead author of the new paper. In a series of experiments with both real couples and lab simulations, the researchers found that the people with higher self-control tend to cave and give into the more indulgent preferences of their partners in order to keep peace in the relationships.

Given that opposites attract, Dzhogleva points out, it’s likely that there are a lot of couples out there with this dynamic of mismatched motivation levels. People with more self-control have that higher level of discipline because they focus on the long-term rather than immediate gratification.

Ironically, this tendency makes them more likely to give in under pressure from their partner. For one thing, they’re thinking about preserving the relationship long-term; they also have the self-control to squelch what would make them happier in order to please their partner.

But the upshot of these good intentions is that otherwise-motivated people wind up blowing off the gym yet again for takeout and a Netflix marathon, Dzhogleva concludes. Unless both people in a couple are both motivated to hit the weights or the treadmill, neither is going to be using that couple’s membership that seemed like such a good deal at the time.

“Higher self-control individuals should be wary of partnering with low self- control individuals,” the paper says. “[It] may negate their innate advantages in pursuing long-term goals.”

Dzhogleva’s findings also hold true for personal finance activities like making a budget or splurging on a vacation, so if your sweetheart is a spendthrift, it could pay to take a close look at how your financial decisions are impacted by that relationship.

 

TIME Saving and Spending

This Is the Easiest City in America for Saving Money

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Aimin Tang—Getty Images/Vetta

Half of all households spend more than they make. Here are the easiest and hardest cities in which to turn that around.

We knew it was bad. But this bad? The typical American is saving nothing, a new analysis of government data shows. Perhaps most unsettling: this zero savings rate seems largely a spending problem—not one of too little income or unexpected hardship.

The U.S. savings rate has been in decline since the 1970s. Official readings from the Commerce Department put the current rate at 3.8%, down from more than 10% some 30 years ago—a lofty savings level that had held for decades. The downward spiral gathered momentum in the 1980s interrupted by just one significant reversal, which occurred during the Great Recession. It’s now clear that the recession-induced spike in savings was temporary.

Unofficially, things appear even worse for a nation battling an intractable retirement savings crisis. Looking at median savings—half save more, have save less—financial site Interest.com found that the typical American is saving zilch. In essence, half of America is spending more than it earns.

The higher official savings rate, which is an average, owes to the outsized savings of the wealthy. The median savings rate more closely approximates most Americans’ experience, and this finding could throw fuel on the roaring debate over rising income inequality recently furthered by Thomas Piketty, among others. After all, half of America isn’t saving a dime.

Yet researchers say the zero savings rate is at heart a discipline problem, not one of inability. Looking at data from the Bureau of Labor Statistics, Interest.com found that median household income exceeds the median monthly cost of running a household by $668. That amount is available for savings but is being lost to spending on all manner of goods and services beyond what is required to live a median lifestyle.

“The results suggest that many households are allowing expenses to grow, whether by moving to a bigger house or buying a more luxurious car, until their bills consume every dollar of disposable income,” Mike Sante, Interest.com managing editor, said in an email. “That’s actually encouraging. It means they aren’t caught in an unwinnable rat race, the powerless victims of economic forces beyond their control.”

The question is: can the median U.S. family, which is now saving nothing, find the resolve to live a median family lifestyle and bank the surplus? It would be easier in some places than in others. The research looked at 18 cities and suggests that the easiest city in which to save is Baltimore, where after-tax median income exceeds median household expenses (including discretionary spending on things like vacations and cars) by $2,021 a month. The toughest city in which to save: Phoenix, where income falls short of household expenses by $95 a month.

Rounding out the five easiest cities to save in are Washington, D.C, where income exceeds costs by $1,664 a month; Cleveland ($1,294); Chicago ($876); and Dallas ($772). Rounding out the five toughest cities to save in are Miami, where income exceeds costs by just $18 a month; Boston ($240); San Diego ($344); and Detroit ($349).

 

 

 

 

TIME Saving and Spending

Peak Pizza Is Here: American Appetite for Pizza Cools Off

Whole pizza in box, overhead view
Getty Images

Pizza may have peaked. Pizza consumption in the U.S. has increased year after year, but forecasts indicate that we may not be able to stomach much more.

Americans eat an astonishing amount of pizza. That’s hardly a news flash. It’s become customary to periodically hear about just how much pizza we eat—seemingly more and more each year. A 2012 report from the food and beverage research firm Technomic, for instance, reported that 40% of Americans ate pizza at least once a week, up from 26% with a weekly pizza habit two years prior. In February, the U.S. Department of Agriculture released a study filled with fascinating pizza-eating factoids, like that on a typical day, 13% of Americans had some varietal of pizza, either served by the lunch lady at school, prepared by a restaurant, or pulled out of the freezer and baked at home. It’s no surprise what demographic tends to eat pizza most often: Roughly one-quarter of boys ages 6 to 19 are enjoying a slice (or three or five) on any given day.

What may come as a surprise, however, is that pizza’s popularity, long on the rise in the U.S., appears to finally be leveling off. “Although consumption is high,” a recent Technomic post noted, “it seems to have decreased just slightly over the past two years, likely peaking post-recession due to pizza’s ability to satisfy cravings and meet needs for value.”

Over the last decade or so, pizza has undeniably been on a hot streak. But success may not have come strictly because pizza is so delicious—and hey, there’s no denying that it is—but also because pizza has been seen as an affordable dining option during the Great Recession and the years that followed. Perhaps inevitably, pizza’s popularity seems to have plateaued, regardless of how the economy is faring.

“Overall, the pizza category has not been doing well,” Bonnie Riggs, a restaurant analyst for the NPD Group, explained to the Chicago Tribune. Riggs pointed to a range of NPD data to bolster her argument, including that foot traffic at major fast-food pizza chains like Pizza Hut decreased 2% last year. Smaller regional pizza chains have actually suffered from declining customer traffic for seven consecutive years, including a 6% dip in 2013.

(MORE: Slices of History: Great Moments in Pizza Innovation)

Many fast-casual pizza restaurant brands have entered the marketplace lately, and quick-service giants not known for pizza, such as Subway, have started serving pizza products too. It’s all made for an increasingly competitive space: Mall food court staple Sbarro, which filed for bankruptcy in early March, appears to be one of the first victims.

Down the road, it looks like all of the pizza sellers will be aggressively fighting for a piece of a pie that’ll more or less stay the same size, as American pizza consumption is expected to remain fairly flat. The Tribune story points to projections made by Euromonitor International, which forecasts that pizza sales in the U.S. will rise by just 1.9% this year and 2.1% in 2015.

TIME Technology and Media

DVDs, Pizza, Porn: How One Video Store Chain Stays in Business

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Getty Images / First Light

Last fall, when Blockbuster announced it would close the last of its storefronts, it seemed to officially end the era of the physical video rental model. Family Video, the country’s largest operational video rental chain, is demonstrating otherwise. (more…)

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