PAY TODAY OR LAYAWAY

The Christmas buying season is here even earlier this year.  We're looking forward to Thanksgiving but the stores already have their sights on maximizing their Christmas bottom line.  Holiday sales are expected to rise 4.1 percent this year.

It seems that our kids just went back to school and the leaves are still on the trees, but the major department stores have already begun their layaway service.  In fact WalMart and Toy “r” Us began a full month earlier this year.

Layaway is a good tool to help you with your shopping and budget.  Using layaway has several advantages – helps you avoid impulse buying, forces you to budget and helps you to avoid getting into trouble with credit card debt.  You can do your own layaway at home with your kids.

In MONEY DOESN'T GROW ON TREES, I teach my Four-Jar Budget System which is saving and budgeting for kids.  Allowance money is divided among the four jars: Charity, Quick Cash, Medium-Term Savings and Long-Term Savings.

Medium-Term Savings is actually layaway at home.  It teaches deferred gratification.  Help your child make a goal to save for.  Go window-shopping at your favorite department store or on the internet.  The age of the child should determine how long the saving should take.  The older the child the more ambitious the goal. Yes, you're teaching delayed gratification, but you're also teaching gratification -   three weeks is a long time to a toddler.  It's a good idea to print out a picture of the item being saved for and attach it to the Medium-Term Savings Jar as an incentive.

When my kids were young we used this method.  You may be surprised to find out how different your kids are from one another.  My son decided he wanted a Walkman – the prehistoric ancestor to the iPod.  My daughter had her sights on a special pair of designer jeans – some of you might be old enough to remember all those commercials  with Brooke Shields – those jeans were all the rage.  

Both kids were certain they knew what they wanted and were patient enough to save up but a funny thing happened along the way.  My son never wavered.  He knew he wanted that Walkman and nothing was going to stop him.  After a few weeks of saving, those must-have jeans no longer seemed so must-have to her.  She decided – and it was her decision – that a pair of regular jeans would be just great.  The logo on the rear pocket wasn't as attractive as it had been.

They both learned valuable lessons.  My son treasured his Walkman for years.  In fact, he took amazing care of it.  My daughter discovered that it might not be so important to have the most expensive item just because it's the trendiest.

As with all good tools you need to do your homework in order to use in-store layaway safely and correctly.  Make sure you read the fine print before you begin.  Putting an item on layaway involves getting into a contract with the store.  Read the rules, payment schedule and fees.  Some stores have eliminated up-front fees.  Others even offer a bonus gift card when your order is paid for. Make sure you really want to buy an item before putting it on layaway.

If you decided not to purchase an item, fees can be costly.  For consumers who don't pay on time or decide to back out, money will be lost [wasted].  Not only will you not get your merchandise, you also don't get your service fees back.  In many cases there is also a cancellation fee.  You will get back any payments you made minus the fees – in the form of a store credit.

Layaway at home or layaway at your favorite stores, it's going to be a long shopping season.  I want you to stay financially healthy.  If the stores are already trying lure your dollars away from you, it is certainly time to make your holiday budget.  After you make your own budget be sure to help your kids with theirs.  Be honest with your budget and be sure to stick to it.  Don't go into debt in the “spirit” of giving.

ALLOWANCE FOR TEACHING

According to a survey by the American Institute of CPAs, parents give their kids an average of $15 a week which adds up to $780 a year with older children receiving more than younger ones.  According to CNNMoney, parents say that their kids are spending their allowance as soon as they get it. That's human nature, isn't it?

Let's take a time out.  Financial literacy is learned and parents need to begin teaching their kids about money early on.  These lessons can start as early as three years-old and continue into adulthood. The fundamentals stay with us for life.

In MONEY DOESN'T GROW ON TREES  I teach my Four-Jar Budget System at length.  This is a system I created when I first began working with kids and families – it really works.  Let's look at the most basic principles.

The first thing to remember is that an allowance is “work for pay” - “work” being a series of age-appropriate chores.  Turn “pay day” into a ritual which means you should distribute the allowance once a week at a specific time. I suggest paying your child $1 for every year of age – for example, a 5 year-old gets $5.

Now about the “jars”, they can be envelopes or even plastic bags but they should be see-through.  The first jar is for Charity.  The second jar is for Quick Cash.  The third jar is Medium-Term Savings.  The last is for Long-Term Savings. Each should be labeled.

Charity is 10 percent off the top of the allowance.  This is how you teach your child the value of giving.  It also opens up a dialogue to discuss your family values.

The balance of the allowance is divided equally among the remaining three jars.

Quick Cash is is there for whatever your child wants to spend it on within the parameters of your family rules.

Medium-Term Savings is for a plan you have made with your child for something that might take three weeks or more of saving.  This is how you teach deferred gratification.

Long-Term Savings is to instill a sense of investment in his own future. I suggest saving for college. As the child grows, this money gets put into a bank account and later into other investments.

Now you have the framework to help teach your child the basics of saving.

IS COLLEGE STILL WORTH IT? - ABSOLUTELY!

According to the U.S. Department of Education, the average prices for undergraduate tuition, room and board were estimated to be $13,600 at public institutions and $36,300 at private not-for-profit institutions.  Remember, those are averages – there are over 100 schools that cost over $50,000 a year.

College tuition is outpacing median incomes but not going to school is even more expensive.  The income gap between the college grad and the high school dropout is huge.  College graduates earn 80 percent more.

While a four-year traditional university is preferable, it may not be for everyone but other post-high school education is also beneficial.  Community colleges, vocational training and even online universities play a valuable role. They offer an alternative higher education and retraining that is affordable and convenient.

Let's put this in real terms. In 2010, of the Americans who earned over $150,000, 82 percent had a minimum of a bachelor degree.  Only 6 percent had just a high school diploma.  People can graduate from college with quite a bit of debt but the investment in college is still a good value.  A study from the Hamilton Project found that $100,000 for college would yield a higher lifetime return than if you had invested that same amount in corporate bonds or hot stocks.

YOUNGER AMERICANS WALK AWAY FROM CARS

According to CNNMoney, young Americans aren't buying cars like they used to.  In the last five years, the share of new cars bought by the 18 – 34 age group fell 30 percent. Is it a sign of the economy or are other social factors at play?

This age group has been hit particularly hard by the recession.  There is also a trend to re-urbanization which affords greater access to public transportation.  The expansion and popularity of car-on-demand rentals is off-setting some of the need to own and insure a vehicle that may not be used very often.

The ever-growing use of social media is reducing the traditional social importance of owning a car.  Now that this generation can meet and interact on the internet, the need to get in the car and go for a cruise downtown isn't as important.

According to a Deloitte study, forty-six percent of Generation Y kids “would choose Internet access over owning a car.” Recent increased driving restrictions such as raised age for licenses, restrictions on cell phone use and limits on car occupancy are taking away that appealing feeling of freedom.  The restrictions actually serve to “cut them off from their friends.”

Auto manufacturer analysts offer a rosier long-term-theory.  They tend to agree that, even though young people may hold off on buying new cars, at some point they will have families, move to the suburbs and need their own cars.

Whether or not you live in an urban location and even though trends maybe changing, you have to teach your kids the financial truth about car ownership.  The manufacturers are probably right in thinking that your kid will be buying a car someday.  Your child needs to know the real cost of having a car and the necessity to budget and save.

In Money Still Doesn't Grow on Trees, I have a chapter titled: TEENS AND CARS – HOW NOT TO DRIVE YOURSELF CRAZY.  I suggest a short quiz for your kids about the different costs associated with buying a car and different costs associated with operating a car. How much are these costs?

Go over your kid's answers with them.  Remember to include sales tax, registration and inspection fees, insurance premium and maintenance.  Don't forget the ever-climbing cost of gasoline. Have your kid do the research and put a realistic price next to each item.  The result is sure to be sticker shock.

I am not in favor of a generation of young people staying at home, tweeting and surfing the net as a substitute for face-to-face human interaction, but perhaps riding a bicycle and utilizing public transportation will continue to be an appealing, economic and Eco-friendly, alternative to owning a car.