5 Financial Lessons Everyone Should Learn by Kindergarten

Kindergarten

We each grasp financial lessons at different points in our lives, but we're never too old -- or too young -- to start learning. Some lessons, however, are so basic that understanding them is nearly a prerequisite to financial survival. Whether you need a refresher yourself or are responsible for shaping a young person's relationship with money, here are five financial lessons everyone should learn by kindergarten.

1. Money Represents Labor

At its most basic level, money is just labor in physical form. Whether you worked for it using your mind or your muscle, the green stuff is the result of some form of effort. And without making your 6-year old mop the floor for a bowl of mac 'n cheese, there are ways to gently and positively make the connections between effort and financial reward.

Of course, the secondary value of this lesson is how it can alter spending behavior. The "aha moment" you want to encourage goes something like this: "If money is labor, then the things I buy with my money also represent my labor." Fully grasping that concept is the root of healthier spending behavior for life (and if you're like me, you know a shocking number of adults who still don't quite get it).

2. Spending Is Not the Same as Investing

Though each may drain our wallets and bank accounts for a period of time, spending and investing are entirely different animals. Dropping $3,500 for a leather couch is spending, but using that same amount to buy a good used car that will get you back and forth to work is investing. Think of it this way. If the item or service you're buying will provide some sort of tangible dividend (such as the ability to stay employed, advance in a career, sell at a profit later, etc.), it's an investment. If it doesn't meet that simple criterion, it's just plain old spending. If you haven't already, learn the basics of investing and put its power to work for you sooner than later.

3. Consumer Credit Is Dangerous

It may not seem this way, but every time we use a credit card, we're taking out a loan. Granted, it might be a mere $3.89 for a hamburger, but it's a loan. And let's face it, the last thing credit card issuers want their customers to do is pay off their balances every billing cycle (credit card companies have an endearing term for those who do -- "deadbeats"). They'd much rather have all those hamburgers, shoes, smartphones, and haircuts add up at a 17 percent interest rate.

Teach your kids the dirty secrets of credit cards. Tell them about the evil geniuses that lurk behind the magnetic strip. You know, the ones who conceived the evil formula of convenience + frequent use + low minimum payments = long-term debt and high returns. Create a bedtime story about an overspending prince who became a pauper because of plastic. It's a cautionary tale for the ages.

4. Wants and Needs Aren't the Same

When I was a kid, I desperately wanted a green plastic toy box shaped like a large frog. I don't remember the brand name, but I do remember wanting to own one so badly that every fibre of my 40-pound body nearly vibrated with green-plastic-frog-toy-box desire. I never got it. Kids want things with such wild enthusiasm that it's difficult for them to distinguish what they want from what they need. Had I been asked way back when I'm sure I could have made a case why that frog toy box was essential to my survival - because it certainly felt that way.

But at any age, being able to clearly distinguish wants from needs is an essential skill. Why? Because we live in an economy that's made a science of confusing the two. Indulgence and denial aside, it's the identification that matters and it's the first step of being able to live within our means.

5. Money Can't Buy Happiness, but It Can Buy Choices

The value of money rests not in its ability to make us happy, but to buy us options in life. An authentic, well-financed choice is a rare bird these days. Many of us feel like we have choices because we're presented with so many options as consumers every waking minute. But to me, most of these sorts of choices feel low-value - "trinket choices" manufactured purely to encourage spending. Only the most financially disciplined can afford to exercise a potentially life-altering choice like switching careers, moving across the country, starting a business, or retiring early. This level of choice gives us the power to reinvent ourselves at any stage of life.

Granted, these are only five lessons in a long list of financial fundamentals. But together, they form a great foundation for building security and wealth. If you're still learning, let your curiosity motivate you. And if you're helping a young person learn, be patient and avoid instilling a sense of fear about money. Remember, the real power comes from understanding that money is not mysterious, wealth is not always the result of dumb luck, and financial security is within our control.

What financial lessons did you learn early in life? Who taught you and how? Which ones are you still learning?

7 Ways to Build Your Credit Score Without a Credit Card

Credit Score

Unless you have a ton of cash at your disposal, you’ll probably need credit at some point in your life. Whether you’re buying a home, car or big-ticket luxury item, the first thing that most lenders typically look at is your credit score.

If you have limited or no credit history, you’ll need to begin building your credit and boost your score before you apply for a major loan. Unfortunately, many believe that opening and using a credit card is the only way to go.

Here are a few alternatives to help raise your credit scores without the magic plastic:

1. Ask companies to report on your behalf

Do you have any recurring bills that you pay on a monthly basis, such as rent, utilities, cable, or a cell phone? Try giving the providers a call and request that they report your account activity to the three major credit bureaus, TransUnion, Experian, and Equifax.

Do this only if you have responsible payment habits, as payment history accounts for 35 percent of your credit scores and can have a significant impact if there is not a lot of other data in your credit reports.

Also, bear in mind that these companies are not obligated to report to the bureaus, and your request is simply a favor that they have the right to deny.

2. Become an authorized user on another credit card

Of course, there are pros and cons of becoming an authorized user. If the cardholder has a strong credit background, two thumbs up for you because signing on as an authorized user will enable their stellar behavior to improve your credit profile somewhat (perhaps not as much as you think). But, if things are the other way around, your credit scores could take a hit.

Either way, if you opt-in and have a change of heart, the information will quickly vanish from your credit file when you request to be removed from the account.

3. Open an account with a credit union and take out a small personal loan

Some credit unions have restricted membership and limited accessibility, but credit unions generally offer financing options at lower interest rates than traditional banks. To give your credit score a boost, apply for a small personal loan.

If your request is denied, inquire about a secured loan in which your money, say, a certificate of deposit or savings account, will be used as collateral. The request will more than likely be approved because the risk to the institution is minimal. And you may have to pay a tad bit of interest, but the rate usually beats what’s available in the credit card world.

4. Apply for an installment loan

Installment loans paid in a timely manner over an extended period of time build your credit scores because they show creditors that you are a responsible borrower. The types of credit in your file make up only 10 percent of your score, but the impact has the potential to be 

Retailers sometimes offer promotional installment loans to customers with little to no introductory interest for a limited period of time. If you have the cash on hand, it may not be a bad idea to take this route. But be sure that you have the total sum of cash available upfront to make timely payments and eliminate the balance before the interest kicks in.

5. If you’re a student, take out a federal student loan

A credit check is not required to obtain a federal student loan. All you need to do is fill out the Free Application for Federal Student Aid (FAFSA), and you’re all set. Since it is an instalment loan, it can help boost your credit score.

But don’t get the loan and blow through the money. Instead, aim for one that is subsidized and deposit the money into a safe interest-bearing account so the funds will be available when repayment starts.

6. Research peer-to-peer loans

Companies such as Prosper and Lending Club offer peer-to-peer loans in an environment where borrowers are connected with individual investors. The interest rates are usually lower than those of traditional financial institutions. And the lenders are eager to loan unsecured funds because the return they derive is competitive with other investments. (See “4 Things to Know About Peer Lending.”)

Most of the peer-to-peer lenders report to the major credit bureaus.

7. Try an alternative credit score

By reporting your payment history to an alternative to the big three credit bureaus, you can create a nontraditional credit score. Check out a service like Payment Reporting Builds Credit, known as PRBC, to learn more about how an alternative credit score service works.

Do you know of any other ways to improve your credit score without using a credit card? 

Source: http://www.moneytalksnews.com/7-ways-build-your-credit-score-without-credit-card/?all=1

The 3 Key Retirement Numbers You Need To Know

Retirement

Retirement means different things to each of us. As you consider your vision for retirement, there are three key numbers to keep in mind; you’ll want to discuss them with your financial adviser if you have one:

Your Withdrawal Rate

This could be your most important retirement number. Your withdrawal rate is the amount you will be taking out of your investment portfolio each year.

Nothing has a bigger impact on your retirement strategy than this number since it can help determine how sustainable your retirement strategy will be. If you choose a number that’s too high, you may run out of money; if the number is too low, it could mean you are being unnecessarily frugal and not living the life you want.

So what withdrawal rate makes sense for you? The answer is: it depends.

As you consider what makes sense for you, start with these questions: How many years will you spend in retirement? Can you be flexible with your withdrawals and not automatically increase your spending each year if you don’t need to? Can you cut back on years of negative investment performance?

For example, we believe a 4% withdrawal rate may be a good starting point, but this assumes a 25-year retirement and the ability to be flexible with your spending if needed. In reality, your personal withdrawal rate will probably differ based on a number of different variables such as your age, how long you expect retirement to last, your asset allocation, and your spending habits, among other things.

Additionally, this rate isn’t something you set and forget — it should be reviewed each year.

The more years you plan on spending in retirement and the less expense-flexibility you have, the more conservative your withdrawal rate should be. This leads us to the second number:

Your Reliance Rate

Your reliance rate is simply the percent of your retirement income coming from your investments. While your withdrawal rate helps determine the sustainability of your retirement strategy, your reliance rate helps measure the sensitivity of your retirement strategy.

For example, say you’ll need $50,000 a year in retirement. If $40,000 will be coming from your portfolio and $10,000 will come from outside sources, your reliance rate is 80%.

As your reliance rate increases, so does your sensitivity to market fluctuations. Regardless of their withdrawal rate, people who rely on their portfolios for 80 percent of their income are probably more sensitive to market declines than people who rely on their portfolios for only 20 percent.

A higher reliance rate means that market declines may have a greater effect on your strategy unless you can be flexible in your spending and maintain a lower portfolio withdrawal rate.

If you are relying on your portfolio for the majority of your income, ask yourself some questions: How flexible are you with your spending? Can you spend less, if necessary, during the inevitable short-term market declines? Also, can you consider other options to increase your income from outside sources? If you can, this could not only reduce your reliance rate, but also the withdrawal rate from your portfolio over the long-term.

And this leads to the third key retirement number:

Your Age for Claiming Social Security

A full discussion of your Social Security options is beyond the scope of this article, but it’s important to understand that your Social Security benefit is an incredibly valuable retirement asset. The decision about when to take Social Security not only affects the amount of your benefit but also your spouse’s potential survivor benefit.

You can start taking it as early as 62 or wait as long as age 70. The more you delay receiving the money, the bigger your benefit will be.

Since your Social Security benefit is unaffected by market performance, it can be the foundation of your retirement income strategy. But it shouldn’t be considered in isolation.

So before you decide when to take Social Security, be sure you evaluate all your options and their effect on your retirement strategy.

Together, these numbers can be used to help ensure that you are better positioned to achieve your vision for retirement.  It’s also important to remember they will probably change over time, so be sure to revisit them so you can stay on track.

By addressing these numbers, you can turn your focus to a more important one —  the number of things you want to accomplish in retirement.

Source: http://www.forbes.com/sites/nextavenue/2015/03/13/the-3-key-retirement-numbers-you-need-to-know/

6 Times to Use Credit Cards Instead of Cash

Credit cards

You might prefer to use cash if you're not a big fan of debt, but don't give credit cards the cold shoulder so quickly. Believe it or not, there are times when it makes more financial sense to use a credit card than to pay in cash. Yep, you read that right. If you know how to use credit responsibly — and if you're committed to only buying what you can afford — there are benefits to enjoying that satisfying swipe. Here are six times it's better to pay with plastic. (See also: Awesome Credit Card Perks You Didn't Know About)

1. Buying Electronics

Whether you're buying a flat-screen TV or a small appliance for your kitchen, the retailer will probably offer an extended warranty at checkout. If you're spending hundreds or thousands for an item you intend on keeping a long time, buying an extended warranty makes sense, especially since many manufacturers only offer a one-year warranty.

If you're thinking about getting an extended warranty, this isn't the time to pay for an electronic appliance with cash. It might come as a surprise, but several credit cards offer extended warranties for electronics as a cardmember perk. Use an eligible card to pay for an item and you might receive a free extended warranty that matches the manufacturer's warranty up to one year. Coverage varies by credit card, so contact your credit card company in advance to know your limits.

2. You Want the Best Price for an Item

There's nothing more frustrating as a savvy consumer than buying an item — only to find it cheaper somewhere else (which is why you should also comparison shop online first). But there's an easy way to save yourself the headache of exchanging items you've overpaid for: Since many credit cards offer price protection, simply pay using your plastic. If you make a purchase in retail stores or online, and later find the same item at a lower price within a specific length of time (usually 90 days), your credit card company may refund the difference up to a certain amount. Not all credit cards offer price protection, so you'll need to read your cardmember benefits to see if you're eligible.

3. You Want to Earn Rewards

Reward credit cards open the door to a variety of freebies, ranging from airline tickets to merchandise. Use a rewards credit card and earn points or cash back for every dollar you spend, then redeem points for travel, gift cards, or even a statement credit. You don't receive these types of perks when paying with cash. Just make sure you pay off your balance every month to avoid high-interest debt.

4. You're Traveling Overseas

Bringing cash when going overseas might seem like the best way to stay on budget, but it's a dangerous way to travel. Lost or stolen cash can't be replaced. On the other hand, if your credit card is lost or stolen, you're not liable for unauthorized charges. Credit is also a good choice because some credit cards don't have a foreign transaction fee, thus allowing you to convert purchases into dollars for free. Depending on the plastic, this can save you the typical 1%-3% foreign transaction fee imposed by some credit cards.

5. You Need to Keep a Record of Purchases

Whether you're running a business or keeping a record of personal expenses, it's easier to track spending with a credit card. You can go online, pull up monthly statements, and view any transaction. With cash, your receipt is the only record, and if you misplace the receipt, you can lose track of where you spent the money.

6. You Have Limited Cash

If you have an emergency, like a home or car repair, using cash you've set aside for bills can strain your finances and cause additional hardship. Some people warn against using a credit card, especially when you can't pay off a balance anytime soon. But if you have a credit card featuring a 0% introductory rate for the first 12 to 18 months, it makes more financial sense to use credit and keep your cash available for other needs. Since you're not paying interest, it's the same as paying cash, so long as you pay off the balance during the 0% APR period. Make sure you check the credit card terms. Some credit cards only apply 0% interest to balance transfers, whereas others apply it to balance transfers and purchases.

What does a credit card instead of cash make more sense for you?

Source: http://www.wisebread.com/6-times-to-use-credit-cards-instead-of-cash

10 Things I Want to Teach My Kids About Investing

Start Investing

I've been blessed with three amazing kids. As their father, I feel compelled to not only protect and provide for them during their childhood but also to help them learn how to provide for themselves when they reach adulthood.

I've also been very fortunate to spend several years as an analyst at The Motley Fool, where I have had the pleasure of working beside and learning from some of the best investors in the world, including David and Tom Gardner.

Along the way, I've learned some foundational principles that have guided my professional and personal investing strategy. They helped me achieve market-beating results in Tier 1, the real-money portfolio that I manage for the Fool, and even helped my family and I purchase our new home.

The following 10 core investment (and life) lessons comprise some of the most important aspects of my Foolish education and form the foundation of what I hope to pass on to my children in the years ahead.

1. Investing in stocks is one of the best ways to build lasting, long-term wealth. Cases can be made for achieving wealth through real estate or the creation and ownership of private businesses, but few asset classes have a track record of wealth creation as solid as public stock ownership, especially on a real (inflation-adjusted) basis. 

Source: Ibbotson Associates. 

2. Stocks represent an ownership stake in a real business. Stocks aren't just pieces of paper or flashing blips on a computer screen. They're a legal claim on the current and future cash flow of a business and should be treated as such. When viewed through this lens, the fundamental drivers of long-term investing success become more clear and easier to grasp.

3. As such, buy shares in the best businesses you can find. This is the foundational principle of Tier 1, where I seek out and invest in the world's elite businesses. In fact, I usually begin my Tier 1 buy alerts with this quote from legendary investor Charlie Munger:

"And, by the way, the bulk of the billions in Berkshire Hathaway has come from the better businesses. ... And most of the other people who've made a lot of money have done so in high-quality businesses."

These include companies with the strongest competitive advantages, largest growth opportunities, and best management. They are the innovators, disruptors, and best of the breed. These businesses are ... Tier 1. And they tend to create tremendous wealth for their shareholders as they lead the world forward.

4. Buy stocks with the intent of holding them for as long as you possibly can. Warren Buffett has said his "favorite holding period is forever." Here at the Fool, Tom Gardner has implemented a minimum five-year holding period requirement in his Everlasting Portfolio, because he, too, is a big believer in the power of long-term stock ownership. While I don't impose that restriction on myself in Tier 1, I do strive to only purchase stock in businesses that I plan to hold for years -- and potentially even decades -- to come. I'm talking about outstanding businesses such as Amazon.com (NASDAQ: AMZN), Google(NASDAQ: GOOG  ) (NASDAQ: GOOGL), and Disney (NYSE: DIS). These companies have dominant competitive advantages that provide a wide moat around their cash flow, yet they still have tremendous runways for growth. They are all core positions in Tier 1 today, and I wouldn't be surprised if they form the foundation of my children's portfolios decades from now.

5. Winners tend to keep on winning. This is another core tenet in Tier 1, and another valuable lesson I learned from Tom and David Gardner. I like to invest in companies and management teams with proven track records of success. That's because I believe past success is one of the best indicators of future success. It certainly is not a guarantee, but I believe winning is a habit. The confidence and momentum achieved from past and current wins tend to pave the way for further risk-taking. Not blind risk predicated on arrogance, but prudent, calculated risks based on optimistic and opportunistic bets on a brighter future.

6. Strive to buy these great companies early in their growth cycles. The earlier you invest in a great business, the more you can profit as other investors catch on to the company's success. This is where fortunes are made, where the 10- and even 100-baggers are found. I have achieved multi-bagger returns in CAPS with several stocks, including 1,000+% gains in Apple (NASDAQ: AAPL  ) and Baidu (NASDAQ: BIDU  ), and it's a major goal of mine to find more of them going forward in Tier 1 so that I can help more people achieve these types of market-crushing -- and potentially life-changing -- returns.

7. Make your portfolio your best expression of the world. David Gardner once urged me to "Find out where the world is going, and get there as soon as possible." Your portfolio should reflect your passions, interests, field of study, and/or profession -- this is where your edge lies. But most of all, your portfolio should be positioned according to your vision of the future, and the more optimistic, the better.

8. Never stop learning. To have an informed opinion of where the world is going, we should seek to expand our horizons and circle of competencies beyond investing and even business, to include a wide array of disciplines such as psychology and the sciences. For the market moves not solely on others' rational thinking and is often swayed by the biases and other intricacies of human behavior. Each day, I strive to learn more about the world in which we live. I hope you'll do the same.

9. Never quit. There will be times when you throw up your hands in frustration and question whether it's worth all the trouble. Seemingly irrational short-term volatility and vicious bear market declines tend to be brutal on high-quality yet often premium-priced businesses. These difficult market times can play havoc on your emotions. However, the only way to win is to stay the course through the inevitable downturns. Steel yourself with the knowledge that this, too, shall pass, and that your best-of-breed businesses will likely emerge from the rubble even stronger as they take share from weaker rivals. As such, learn to look at these sell-offs as opportunities to add to your positions at even better prices, and you will magnify your long-term gains.

10. Use for good the tremendous wealth these principles will help you create. Along with investing in businesses that lead the world forward, strive to have a positive impact on the world around you. Help others. Donate what you can to worthy causes. And pass on what you have learned, as I have attempted to do here.

On that note, I'd like to ask all the Fools reading this article to list the lessons you would like to pass on in the comments section below.

And lastly, to my children, know that Daddy loves you -- now, and always.

Source: http://www.fool.com/investing/general/2015/03/08/10-things-i-want-to-teach-my-kids-about-investing.aspx

To Combat Fraud, Visa Wants to Track Your Smartphone

Visa

NEW YORK -- Those days of calling your bank to let them know that, yes, you really are in Thailand, and yes, you really did use your credit card to buy $200 in sarongs, may be coming to an end.

The payment processing company Visa (V) will roll out a new feature this spring that will allow its cardholders to inform their banks where they are automatic, using the location function found in nearly every smartphone.

Having your bank and Visa know where you are at all times may sound a little like "Big Brother." But privacy experts are actually applauding the feature, saying that, if used correctly, it could protect cardholders and cut down on credit card fraud.

Credit and debit card fraud costs consumers and banks billions of dollars each year, and that figure has been growing as data breaches have become more common. The banking industry had $1.57 billion in debit card fraud in 2013 and $4 billion in credit card fraud in 2012, the latest years for which data are available, according to the Federal Reserve.

Facing these high costs, banks and the payment processors have been stepping up their efforts to cut down on fraud, and Visa's announcement is just one small piece of this drive. JPMorgan Chase (JPM) CEO Jamie Dimon has said repeatedly that his bank spends $250 million overall on cybersecurity every year and plans to double that spending.

Tracking Purchases

Here's how it works: starting in April, banks will update their smartphone apps to include Visa's new location-tracking software. If the consumer opts in, the Visa software will, over a period of time, establish a customer's home territory of roughly a 50-mile radius. If the person uses his or her Visa card at stores in that area, those transactions will be considered low risk for fraud.

When that person travels outside their home area, the phone will notify Visa that they've entered a new city or country, using either the phone's cellular data plan or the next time the phone connects to a Wi-Fi network. When that person uses their Visa card for a transaction in that location, Visa will already know he or she is there and will be less likely to flag the card for a fraud alert.

"We will be able to compare the merchant's location to the most recent cellphone location to show it's a less risky transaction," Visa executive Mark Nelsen said.

The feature is optional and can be deactivated at any time. Visa also says none of the location trackings will be used for marketing purposes.

Combating Counterfeit Cards

One type of fraud Visa's feature will directly address is counterfeit credit cards. Criminals can take stolen credit card information and code it onto a new card using equipment that can be readily purchased online. Counterfeit cards look like any other credit card but have someone else's information on the magnetic stripe.

Nelsen said Visa hopes the new security feature will prevent "a good portion" of fraud perpetrated with counterfeit cards because those cards are often used in a location other than where the actual card owner lives.

Visa's new anti-fraud measure, which the company announced Thursday, won't address every potential fraud situation. If a card user has both their phone and credit cards stolen, for example, Visa wouldn't necessarily know that the card was at risk of fraudulent use until the cardholder contacted the company.

The current version of Visa's anti-fraud software doesn't address the possibility of stolen credit card data being used to make online purchases, but a future version will Nelsen said.

Visa is just one of the dozens of financial companies trying to figure out the best way to use new technologies to combat fraud. MasterCard (MA) said Friday it is rolling out a pilot program later this year that will integrate biometric data, such as face, voice or fingerprints, into its payment system to help authenticate transactions.

Cumbersome Process

Many travelers have had the experience of having their credit cards declined when using them for the first time in a foreign city or country because the bank assumed the charge was fraudulent. The only solution in those situations was for the cardholders to call the banks or credit card issuer every time they travel to let them know where they will be.

The process is cumbersome and time-consuming for cardholders and also for banks, which incur large expenses to staff call centers to deal with these types of calls from customers. Some banks use systems like text message alerts, but that usually requires customers to reply or call a number before the transaction will go through.

"The goal is to let more of those good transactions go through so we can focus on the real fraud," Nelsen said.

Privacy experts were generally warm to the idea, as long as banks are clear on how a customer's smartphone location will be used.

"When a trusted party -- and I think people think of their bank as a trusted party -- is looking out for you using what technology they have, I think people will welcome that," said Jules Polenesky, with the Future of Privacy Forum. Polenesky said Visa approached him six months ago to get feedback on this idea and to address any privacy concerns.

Justin Bookman, director of consumer privacy at the Center for Democracy & Technology, also supported the feature as long as banks are clear it's optional and how the data is being used.

"We effectively share our location with our banks every day when we swipe our credit cards," Bookman said. "As long as it remains optional, I believe it's a worthwhile idea."

Source:https://www.latimes.com/business/la-fi-visa-security-20150213-story.html