Departments: Money

Financial Education for the Young

Q: My daughter is a college senior and knows nothing about personal finance. What could I get her for Christmas that would help her get ready for life on her own?

A: A million dollars? Just kidding. I like Beth Kobliner's Get a Financial Life, a book for twenty-somethings that covers the financial basics. You might consider a magazine subscription as well, if you think she'd be interested. And there's a lot of good stuff that's free online.

Perhaps you could make an investing bookmark with Web site addresses. Morningstar, the mutual fund rating service, offers information and advice at www.morningstar.com. Many mutual fund companies also have Web sites. I like the one sponsored by the Vanguard Group at www.vanguard.com because it includes basic investing education and explains the advantages of indexing, or buying market indexes rather than funds that are actively managed by a fund manager. Of course, Vanguard plugs the indexes because it is the major vendor of index funds. Still, I find the information solid.

Many investors like The Motley Fool's site at www.fool.com. Money Central, where I write a column at www.moneycentral.com, offers free tools that help investors screen stocks and funds. And, like many other Web sites, it offers investors the opportunity to set up a dummy portfolio and watch how the stocks are affected by news events. Money Central also has a number of message boards where investors can ask questions about investing. We often have college students who want to get started in our Start Investing newsgroup.

There are advantages and disadvantages to getting information online. What I love about it is that it's personal and anonymous at the same time. People can ask the most basic questions without having to worry that someone is laughing at them or thinking about how little they know. I find the online groups to be pretty free of animosity and hostility. Most people there are eager to learn and eager to help.

The negative is that not all the advice is good advice. Sometimes I'll see a question from a newbie investor asking how he should get started. And then I'll see someone reel off a list of aggressive technology stocks that are totally unsuitable for a beginner. I believe no one should buy stocks just because they're recommended in an online newsgroup.

A better way to use a newsgroup is to bounce off your own ideas. For instance, your daughter might put together a list of mutual funds and then ask the group: What's right and what's wrong with my choices?

Q: We are buying a new home and my husband wants to get a 15-year mortgage. I want a 30-year. What's best?

A: Obviously you can afford the slightly higher payments on a 15-year or you wouldn't be asking the question. So I think it comes down to psychological issues.

Sure there are financial differences. If you go with the 15-year, you'll pay slightly more each month but far, far less over the term of the loan. Yet some investors prefer to go with the 30-year and invest the difference in stocks. They point out, too, that the 30-year brings more tax advantages, since the interest on a home loan is one of the few tax deductions available to middle-income taxpayers.

That's true. But for some people, the 15-year offers big psychological advantages. My husband and I switched to a 15-year loan last year, and we are delighted with it. It makes us feel that we are cleaning up our balance sheet and getting out of debt.

I've heard other homeowners argue that they went with the 30-year because it gives them more options. They can still pay the loan down as quickly as they like. But they're not forced to do so. So if something comes along and they need the money, they've got it. One way for you and your husband to compromise would be to choose the 30-year and then make extra principal payments.

Q: I heard that you should subtract your age from 100 and that whatever is left is the percentage amount you should put into stocks. Do you agree?

A: Not really. The formula is not a bad starting point. As you probably know, stocks are the engine for growth in a portfolio. Bonds are a capital preservation tool. That doesn't mean that you can't lose money in bonds. But bonds are less volatile than stocks. The idea behind the formula is that as you grow older you should shift more of your money into the safety of bonds.

But the formula has become outdated by demographic changes. At age 40, you might live another 60 years and your portfolio needs growth to outpace inflation. I could argue that a 40-year-old-and even a 50-year-old-should have 80 percent of long-term money in stocks. But of course this depends on other factors, such as your risk tolerance, as well.

Q: What's the best New Year's resolution to make about money?

A: Be careful not to get too ambitious. Most resolutions fail because they're unrealistic-like losing 50 pounds or cutting out every indulgence like your Starbucks cappuccino. Instead, promise to start by saving $10 a week and to increase it after six weeks. Better to start small and succeed than to start big and fail.

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Thrifty Educator

This month's tip comes from Kari Trupkin, a middle school teacher in Miami, Florida.

My seventh grade math students receive a monthly homework calendar and matching assignment packet. This requires an enormous amount of copier paper and a large portion of my time standing at the copier machine. Inevitably, many students lose the packet.

After surveying the students, I realized that many of them have computers at home. In one advanced class, everyone owns a computer! I jumped on this opportunity and spoke to the computer teacher. We decided that it would be very easy to scan my homework packet and monthly calendar onto the school Web site and let the students download the homework. This will save a tremendous amount of both paper and time. Students get to use the computer daily. Absent students always know what the homework is. And parent involvement is only a click away.

Kari Trupkin
Trupkin@crms.dade.k12.fl.us.
Cutler Ridge Middle School
Miami, FloridaTK tk

Last year, NEA members received over 3 million magazines through NEA Magazine Service.

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