State of the Economy
Speaking of the Economy, Where Are We?
Thursday, August 26th
It’s late August and we’re almost nine months into the year. The stock market has hardly moved, but the scorecard puts the overall market in the red by about 2 percent. Housing? It seems like nobody is in the market to buy a house. There are simply too many houses for sale and not enough buyers who feel secure enough to take out a mortgage. Existing home sales in July were down by more than 27 percent. And how are your savings doing? Your bank is not willing to pay any interest on your savings and neither is the U.S. Government. The rate for holding onto a US Treasury Bill for two years is just one-half of one percent. Everything’s down, but so are gas prices, which is good news!
Let’s circle back to housing for just a minute because when economists and newscasters talk about the economy, we always hear them refer to the term, housing starts. Unlike unemployment, housing starts are considered leading indicators for where the economy is headed in the future, and even more importantly, where American consumers believe the economy is heading. Economists and market analysts pay close attention to these monthly reports that indicate the number of brand new residential construction projects that are underway or have been started during a specific time frame – usually over the past month. If the economy’s looking up, more people are generally going to feel confident about investing in a new house and confident they can keep making the mortgage payments.
We all know now that house prices can’t always go up, so where do we go from here? Lots of experts feel strongly that it was the government who kept the punchbowl filled with respect to the “house party” thrown over the past two decades. But now that the government has allowed the $8,000 tax credit to expire, it feels like all the alcohol’s been drained out of the punch, and in most parts of the country, house prices have already dropped more than 25 percent since the start of 2008. Mortgage rates are at their lowest rates in decades, and that’s a good thing for first-time homebuyers, but with unemployment rates so high, I’m wondering if private lenders are really motivated to make home loans? Well, not without the fortification of a hefty, healthy down payment of 20 percent or more and an impeccable credit history. If you’re already a homeowner and your house is truly worth less than the outstanding mortgage balance, what really matters now is how long you intend to live in your house. If you are looking to buy a house, it’s smart to think about ownership in terms of ten years – not the three or even five year time horizons like the good ‘ol days.
Part 2: Tips to keep your budget on track
Families with two kids in school will spend an average of $550 on back-to-school shopping!
When I was a kid, my back-to-school bare necessities consisted of a couple of spiral notebooks, a box of pencils (colored pencils too), magic markers, a ruler and a book bag. My how things have changed… Now, it’s all about laptops, cell phones and zip drives. It’s no wonder the back-to-school shopping list looks like my Christmas list to Santa!
Keep your school supplies budget on track with these five tips:
- Start Now: Don’t wait until the last minute to start shopping for necessities. According to the Chase Slate – US News Monitor, 55 percent of the parents polled are putting off shopping for back to school until the last minute and 62 percent say they haven’t even established a budget. If you’ve ever gone into the grocery store without a list you know what happens – - you buy on impulse and wind up overspending, only to realize that once you’re home that you forget to pick up the milk!
- Create a realistic list: Save money and reduce the stress of shopping by getting your kids involved in process of coming up with the items on the all-important school shopping list. After all it’s their stuff, so it has to be their list! Take a few minutes and together, come up with your list of items. This list gives you an excuse to point out the “need to have” items and “wish I could have” items – - the book bags they really need versus the Juicy Couture jeggings for $50 your daughter says she has to have for first day of school.
- Stick to the list: By getting your kids invested in creating the shopping list, you can make them more responsible for sticking only to the items on the list. (Again, it’s THEIR list!). Despite the hype, there’s no need to go over the top with supplies or clothes. If your kids want any special items, try to have them play an active role in looking for coupons or deals on these purchases. Did someone say… teaching moment?
- Make and maximize a budget: Parents can introduce their children to the concept of using a budget to ensure they don’t overspend. Show them how you intend to pay off some things while other bigger-ticket purchases, like lap tops, might require a plan over time. The idea is to walk them through the process and yeah, make sure you can pay off the school supplies before the holidays kick in! Once you’ve created their shopping list, just divide the list items into “must have” and “wish list” categories, then evaluate the best options to finance both big ticket and everyday items. In terms of planning, accounting is nothing more than making best guesses, assumptions and using estimates based on what you spent last year. Together with your kids, let them help you take your best guess at what items will really cost. Now you can start talking about how to shop for bargains and clue them into the fact that if you can save on the external hard-drive and the fancy jeans, you can get more.
- Shop creatively: Now you have their list in-hand so you have their full attention because they will want to make sure they actually get the goods so now you can get creative with the shopping: check out Shopkick, a phone app that can lead you discounts at stores like Best Buy and search for the goods you know you need at bulk stores like Costco, garage sales, and on eBay to find bargains on supplies. Just avoid the impulse to buy what’s on display at the retailers. And don’t forget to “shop” around the house to see what’s left from last year. For parents with extra time, you can even try selling gently used goods, and use any extra cash towards new supplies. Negotiate with your kids on which of their items they can re-use versus buying brand new. Also, work the calendar! You know the best discounts are going to happen after the kids are already in school so make your first shopping excursions about picking up those necessities and then once the big red clearance signs are up, head out and buy the wish list items at a deep discount.
By involving your kids in every step, you’re helping yourself to save money and teaching your kids some valuable real world lessons that can only help them over the rest of their lives.
If you have kids, your fiscal year kicks off now!
Parents: If you’ve got kids in school, your fiscal year kicks off in August!
I believe that kids can understand a lot more about managing money than we give them credit for. That’s why I’m always on the lookout for “teaching moments” to introduce personal finance to our kids. Right now, I see one of those moments coming… as kids head Back-To-School! This is one of those predictable, repeatable rituals that gets expensive but you can actually plan for it.
Since the economy is so S-L-O-W, school districts are having to do more with a lot less funding. Parents will be expected to take on even more school-related expenses, like fees for extra activities, budgeting for athletic gear, or your kids typical pencils, pens and glue sticks. If you’re a parent, you’ve got everything from ziplock bags for snacks to zip drives for data on your shopping list right about now.
I’ve been searching for very helpful online tools that can guide parents through the budget process with the hope that the kids can get involved with the budgeting process. After all, it’s their stuff you’re buying! Funny enough, about the same time I was researching tools, I was approached by Chase to help promote a brand new tool called Blueprint that comes with some of the Chase credit cards. I’ve seen a lot of advertising about how you can pay off some purchases, split up others and actually get some control over your debt and monitor your progress. Sounded a little too consumer-ish for a credit card company. I was skeptical, but decided to take it for a test drive.
Well, guess what? I decided to endorse this super-simple planning tool because quite frankly it truly can help you in two big, big ways. 1) This tool makes it really easy to plan ahead how you intend to pay for each purchase on your Back-To-School shopping list. 2) It’s so simple and visual that it becomes a perfect tool to use in teaching your own kids how you intend to pay for all the items on their list!
The bottom line is that most of us need a credit card to operate, and managing that debt is essential to maintaining a good credit score. If you have a Chase card or are comparing cards, I do recommend checking out the Chase Slate with Blueprint. CLICK HERE to find out more and get a feel for what a statement looks like when you use the budgeting tool.
I’ll be talking about this and other Back-To-School budgeting advice during the coming week on shows like Good Money on ABC. Follow me on twitter and Facebook for the latest appearances.
If you miss the segments and want to learn more about, stay tuned. Next week’s blog post will be tips to help parents save money on Back-To-School purchases.
Parents, You Matter
Teach your kids about money. Mine did!
“Parents have an enormous influence on how their kids behave (or misbehave) when it comes to managing money.”
You often hear me talk about the power of parent’s influence over their children’s views about money, and the research backs this up. Kids really do learn more about money from their own parents than what you might them to learn in the classroom. It’s the everyday dialogue they hear around the house about what the parents can and cannot “afford” and which bills still need to be paid. It’s hearing the stress in the parents voices when they discuss what they have versus what they don’t have. On some level, we know by the time we’re in grade school whether our parents have a healthy attitude about spending and investing or if they are intimidated, threatened or angry and resentful about their money issues.
Now, more than ever before, I know how much my parents’ attitudes about money have affected me. I am thinking of all this today because last Wednesday, July 28th, I lost my mom. If you watch MoneyTrack regularly, you have seen Lucille show up every now and again, and that’s because this woman’s approach to managing money had a profound effect on me. For some really odd reason, both my parents were acutely aware that they were training us for life in the real world.
My dad spent time with me starting back in middle school smoothing out the newspaper on the kitchen table and pointing to the impossible-to-read tiny fine print on that pages that went on and on listing ridicules details about stocks that were bought and sold that day. Believe me, in seventh grade, the only reason I focused on it for more than 30-seconds was because I could see this meant something to my dad. He did this often and made me think I was learning the secrets of what makes the world go round which, in a way, is true. Then, he started quizzing me and the whole thing became a game - a really fun game! I thought it was pretty darn cool that my dad knew so much about this subject and his intense interest inspired me to learn more. It became one of those conversations that did not have to involve my older sister or my mom.
When I got my first job scooping ice cream at Friendly’s on Cape Cod, my dad introduced the concept of paying taxes which was pretty shocking because I figured I’d made $135 in a one week but my paycheck said I was actually getting a check for $113. My dad taught me how to prepare a tax return which I hated but recognized as necessary if I was going to live in America. Meantime, my mom paid all the bills and pretty much managed the cash flow in our home. Let me tell you, there wasn’t much of an allowance going on in my house and the tooth fairy was a little on the tight side compared to what my friends got for their front teeth.
Lucille had a “system” for paying bills – she actually called it her system and it turns out to be a heck of a lot like Mint.com or any other modern day online tool we rely on today to organize our money. The only difference, of course, is Lucille’s system only involved a pencil (very sharp) and paper. Not even a calculator. I remember she would get really angry and worked up about bills coming due that she could not pay in full. She’d get on the phone and write her little notes and negotiate with everybody from the gas company to the telephone or the plumber. On those days, we couldn’t even talk to her.
Lucille really cared about her appearance and wanted to shop at nice (unaffordable) expensive stores so she had store credit cards for a handful of very upscale department stores. I remember many a shopping excursion where we didn’t even get all the way into the store because the sale rack was by the front door and that was going to be the only rack we’d look through. Yes, Lucille was a penny pincher – squarely in the “saver” camp. When I was about nine, it was my mom who marched me down to the savings bank to open my first passbook savings account with money I’d gotten in birthday cards from my generous relatives.
All of these memories have become the backdrop for how I deal with my own money. I thank my dad for grooming me so early so I could use that knowledge to beat the pants off all the older kids in Monopoly and then later begin a career in the financial world. And Lucille, I have you to thank for raising me with an awareness that money does not in fact grow on trees, and that spending more than you really have is not acceptable behavior. Reality check mom! I just want to say that I am grateful to both my parents because the only reason I have such an avid interest in the subject of money – especially investing and protecting it, is because my learning these practical life skills was so important to both of them.
Here’s to 94 years of Lucille! I love you mom!