Advanced Personal Finance

I found this piece from the Wall Street Journal regarding savings bonds and the SSN(s) that appear on them enlightening. You don’t need the SSN of the recipient of a gift of a savings bond in order to buy the bond. We recently ran into this situation when our son was born a couple of months ago.

One of my wife’s relatives wanted to continue a tradition of giving a savings bond to newborns in the family. But the message about her plans came through another relative who was vague about what was happening. This intermediary relative simply said she wanted to pass on our son’s SSN to a family member. Not knowing who or why, we were (understandably, I believe) reluctant to provide the SSN.

It turns out everything was above board and we got a savings bond in our son’s name the other day, courtesy my wife’s relative. A very nice gesture.

According to the WSJ article, Dept. of Treasury likely won’t reissue the bond if you want to change the SSN that appears on it. When the bond is cashed, the bank cashing it records the SSN of the named bearer and forwards that information on to the IRS so they can get paid, too.

One of the big reasons we didn’t want to disclose our son’s SSN was because he could be the victim of identity theft and we’d likely not know it for years. As I wrote before, stealing a minor’s identity is a particularly insidious form of identity theft. Since, unlike you and me, kids don’t regularly check their credit reports, the damage of an identity theft could be ongoing for years.

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Right now, we’re undergoing a junk purging at our house. It’s kind of liberating, in a way, seeing piles of stuff you no longer use or want going out of the house. I had a bit of a dilemma with it recently though. What do I do with all that crap?

To date, whenever we do this sort of thing, we’ve generally separated things into two piles - good enough to give to Goodwill and trash. Embarrassingly often, the ‘perfectly good enough to give to Goodwill’ pile is bigger by an order of magnitude. However, as I was getting rid of a batch today, I realized some of this stuff might actually be worth something.

The stuff in question was toys, specifically, ‘collectible’ dolls. I wondered, “would it be worthwhile to try to sell any of this stuff on Craigslist and/or Ebay?” I fired up the ol’ interweb and hit Ebay to find out. Turns out that, yes, some of this stuff was being sold and for half-decent coin.

Now I had a problem. I could either separate stuff into three piles - Goodwill, Ebay, trash, or I could continue with my two-pile system. Guesses what I did?

I stuck with two categories - Goodwill and trash.

Why? Simple - I did a quick calculation of how much time I’d spend selling the stuff compared to how much I’d make. There was no contest; it’s not worth it to me to take the time to sell it. I’ve never sold anything on Ebay, but I figured these would be the steps:

1. Separate all this stuff.
2. Take pictures of everything I wanted to sell.
3. Create a listing with words and everything (me not so good with words).
4. Start auction.
5. Wait.
6. Wait.
7. Wait.
8. Deal with person who won the auction (transaction, emails back and forth, etc).
9. Go to post office, box and mail stuff.
10. Repeat.

No thanks. I think I’ll just stick with giving it to Goodwill and taking a small tax deduction.

There’s probably a business in there somewhere. I give you my piles of possibly-salable crap, you sell it and keep a piece for yourself. Everybody wins I guess. There are probably people who do this already, though. I’m not a very creative person, so this idea’s probably being done.

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After discussing it for a while with my wife, we’ve decided to open a savings account in our daughter’s name. She’s almost four, and we’ve decided now is the right time to start formally teaching her about money. Up until now, most of her financial education has been informal or came from credit card companies.

To that end, I opened a First Start savings account through USAA. USAA continues to be the most awesome financial services company ever. This product is specifically targeted at kids and getting them to save. It is the best saving account for kids there is (And, no, they don’t pay me to write that. Attention USAA: I’d love to start being paid to write this stuff). Here’s why it’s so awesome:

• No service fees whatsoever (for low balance, etc)

• APY of 2.05%, so they actually earn some interest you can point to

• Better-than-free ATM access (USAA not only doesn’t charge ATM fees, they actually refund the fees other banks charge you)

The plan

My wife and I have tentatively developed a plan for our daughter’s finances.

• Her allowance will be $1 per year of age per week

• She will have to put a portion away to donate to charity. My wife suggested we make giving tangible by having our daughter save her ‘charity’ money and purchase gifts that our church suggests for our sister parish and the local needy. I really like the idea.

• The rest of her ‘pay check’ gets split between savings and spending. Which, in practice, means long term savings and short term, since the amounts we’re dealing with are so small.

I’m still figuring out how I want to do it, but I want to develop some sort of ‘matching’ contribution. The idea is to match her long term savings like an employer might match a 401(k) contribution. I’m thinking the best way to do it is in a lump sum at the end of the year. I figure the impact will be that much greater that way, since the match would be a sizeable amount of money. I’m thinking dollar for dollar is reasonable.

One key thing about this whole allowance business is I’m adamantly opposed to tying it to chores. From everything I’ve read on the subject, doing so is counterproductive. The theory behind not tying allowance to chores is that every member of the family has responsibilities to the family (e.g. setting the table or helping with laundry) independent of any allowance.

I never had an allowance as a kid, so I’m just guessing at this stuff. If anybody has suggestions regarding kids and allowances (what works, what doesn’t, did you have one) I’d love to here them.

(By the way, I opted not to get the ATM card with the account. At least not right now )

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This is off topic, but I feel like getting this off my chest.

Attention people traveling by plane over Thanksgiving holiday: By choosing to fly over the Thanksgiving holiday, you have forfeit all right to complain.  If you chose to travel by air this time of year, you deserve everything you get.  This includes, but is not limited to, flight delays, lost bags, long lines, and poor service.

Attention people shopping the day after Thanksgiving: By choosing to shop on the stupidest day of the year for shopping in person, you have forfeit all right to complain.  If you chose to get up at 4 AM to line up outside Best Buy to get a DVD player for a nickel, you deserve everything you get.  This includes, but is not limited to, crappy weather, long waits, long lines, out-of-stock items, and surly service.

And let me talk for a minute about customer service.  Don’t bitch about poor customer service unless you’re in the habit of frequenting Ritz-Carlton hotels.  Americans long ago chose low prices over good service, hence the success of Wal-Mart.

That’s another thing.  If you shop at Wal-Mart, you have forfeit your right to say Wal-Mart should treat their employees better by offering them a living wage or good health benefits.  You don’t shop at Wal-Mart because their stores are clean and the employees friendly.  You shop there because their prices are the lowest in town short of the dumpster.

It all flows really nicely.  Consumers shop places with the lowest prices in droves.  Those places pay terrible wages to employees who are supposed to provide service to the customer.  Employees don’t give a crap about providing that service.  Consumers get poor service but low prices.  Consumers continue to shop there.  It all works.

So this holiday season, before you open your mouth to complain about the lousy service, stop and think what you’re paying for it.  Because the correct answer is, “Next to nothing.”

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At CNN/Money, their personal finance columnist, Walter Updegrave, fields a question from someone wondering if he has enough saved for retirement. The specifics of the question and the answer aren’t of particular interest, but Updegrave did write several things I agree with and want to emphasize.

In the letter, the writer says he wants a specific amount of income ($125,000 per year) in retirement, which happens to be his current income. He writes that he has an investment property and has saved a considerable amount already. He also states that he saves $30,000 per year after tax in addition to his 401(k).

Updegrave points out a couple of important points:

1. He correctly points out that $125,000 today will not have the same buying power 10 years hence. Inflation is something people often forget when and if they bother to calculate how much they need for retirement.
2. When considering how much income you need in retirement, it’s important to note how much you save for that goal now. That is, if you save $15,500 (the 2007 maximum) in your 401(k) and $4,000 in a Roth IRA (also the maximum for 2007), you’re really currently living on your salary minus almost $20,000. For example, if you are making $90,000 and saving like this, you’re really living on more like $70,000.

I’d add one more:

• What you need in retirement is largely dependent on your health. I’d wager that, for most people, their expected standard of living in retirement probably isn’t much different than what it is today. The big unknown, though, is just how healthy (or unhealthy) they’ll be at retirement. With health care costs climbing much faster than inflation every year, I believe this is the key factor in retirement income planning.

When I look at our retirement ‘number’ I try to look at each of these three things - inflation, actual current income, and expected health. Then, I just do the best I can to plan accurately. The plan will be wrong, but I believe the planning process is worthwhile.

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