Good News for Those Who Need Debt Consolidation!

This week on ABC NEWS, I was able to share GOOD NEWS for those who are in need of help!

Consumers in a post recession economy are easy prey for advertisements that claim their company can reduce your debt by 50% or more in just a few months. Thousands of those who have been battered by the recession have succumbed to the ads and dialed the toll free numbers featured in these ads. They’ve also signed up for debt-relief services, often at considerable expense. Sadly, many of these consumers have ended up even deeper in debt than before they made the phone call. Today, let's look at the facts.

Q. First of all, how bad is the situation among debt relief agencies—are most of those firms out to take advantage of consumers?

ELLIE: The situation is pretty bleak, the Better Business Bureau reports more than 3500 complaints about debt-relief companies since the beginning of the recession. Granted, it’s probably out of line to make gross generalizations and say that all debt relief agencies are out to take advantage of a debt ridden consumer. There are some out there that are doing a good job with minimal fees attached. But unfortunately, there are many more that are adding to the debt woes of those they say they are trying to “help.”

Q. Would you say that the debt consolidation industry has thrived during a down economy?

ELLIE: Absolutely, it’s one of those industries that tends to do very well during financially challenging times. All of the sudden, people can’t pay their bills and they hear about others who have gone to a credit union or a debt consolidation company that has combined their debt in order to reduce monthly payments. But I believe, personally, that this industry, which tends to be opportunistic at best---is about to see a major change.

Q. A rule approved by the Federal Trade Commission last week will make it much harder for debt settlement companies to make a living. How does this FTC ruling help consumers?

ELLIE: It’s primarily wrapped up in the way that debt consolidation companies can advertise. No longer can they promise to “wipe away your debt” or “reduce it by 50%.” These dubious claims about their success rates are coming under close scrutiny. But even more importantly, the rule will prevent them from charging upfront fees for their services, which is expected to put a lot of debt-settlement companies out of business.

Q. Do you think it’s a good thing that many of these debt settlement companies could go under?

ELLIE: Yes! As a financial expert for the last 20 years, I’ve seen a lot of businesses that are out to stick it to the consumer. I’m all about helping families get out of debt and in my opinion, the majority of these companies are adding so many fees, that a lot of the people I’ve talked to are actually in debt 3 to 5 years LONGER after going to these kinds of companies. It’s been a wild, wild west for debt settlement and it’s about time the sheriff showed up and put some of those guys out of business.

Q. But the problem is greater than just dealing with the debt settlement firms, right? Aren’t there other companies that contribute to this problem and what is the FTC doing about them?

ELLIE: Excellent point, and I’m glad you brought it up. There are others that contribute to the issue and the FTC is cracking down on those companies as well. For example, there have been marketing agencies that earn big commissions for signing up as many customers for debt settlements as they can. These businesses have no interest in determining whether consumers are good candidates for debt settlement—they are just going after the bucks. In fact, many of those who signed up for debt settlement end up in Chapter 7 bankruptcy.

Q. It almost sounds as if there are no good options when it comes to debt settlement—are there any “good guys” out there in the wild, wild west? Is debt settlement ever a good idea?

ELLIE: There are legitimate companies that don’t charge an upfront fee and they offer full disclosure about what they can and cannot do for the consumer. You can go to the National Foundation for Credit Counseling, a non-profit organziation that can direct you. There are consumers out there who have large credit card balances, need debt consolidation and are not good candidates for bankruptcy. In fact, a 2005 bankruptcy reform law created a “means test” that has made it more difficult for some individuals to file for Chapter 7 bankruptcy. And a bankruptcy filing will stay on your credit report for 10 years, which could make it difficult for you to get a job, particularly one that requires a security clearance.

Q. So, how to you find a company that can truly help consolidate your debt without taking advantage of your difficult situation?

ELLIE: The key is to ask them the right questions such as:
“What’s your success rate and what percentage of people drop out of your program?”
Before the FTC rule came into play, companies could cherry pick examples of successful customers to inflate their results. But now if the company claims it can reduce your debt by a certain percentage—for example 40% to 60%--then the consumer has the right to ask for objective evidence to support those claims. If they can’t provide the information, then they probably belong to the unscrupulous crowd.

Q. What are some other questions consumers should ask?

ELLIE: Besides asking about their success rate, the next most important question is: “How much will it cost, and how long will it take to settle my debts?” The biggest misconception that people have about debt settlement is they’ll get a service in exchange for an advance payment. Most of them do not do that. In fact, the new FTC rule now bars debt settlement firms from collecting any money until they’ve settled or reduced your debt. But you should still make sure you understand how much the service is going to cost and how long you’ll have to wait before you see results.

Ellie Kay
America's Family Financial Expert (R)

Your Questions about 401(k) Loans & Withdrawals

On ABC News Now and KLOVE this past week, I answered YOUR questions!



Q. It seems like every other friend of mine is taking the loan option on their 401(k). How many people are doing this?

Samantha Jones from Pennsylvania
Submitted via twitter

ELLIE: The second quarter report we talked about earlier also noted an increase in 401(k) loans. If you want to go the loan route, you need to know that workers are required to exhaust all other sources of fund—including a 401(k) loan—before they can take a hardship withdrawal. During the past 12 months 11% of plan participants initiated a loan, which is up from 9% during the previous 12 month period. 22% of plan participants had outstanding loans during the second quarter vs 20% a year earlier.

Q. If you want to take a loan on your 401(k) what kind of a reason do you have to give?

James from Fort Worth, TX
Submitted via facebook

ELLIE: A loan option is not a hardship option. For a hardship, you have to have specific reasons that fall within a certain criteria established by the IRS and/or the company. But for a loan, you don’t have to give a reason. You can take up to $50,000 or 50% of the amount in your plan, as long as it is vested by company rules, whichever of these is less. Since you are required to take a loan before you can apply for a hardship, this means that you will have little to nothing left in that account by the time you are done raiding your 401(k).

Q. If you take a loan against your 401(k), then what kind of a percentage point do you have to pay when you pay it back?

ELLIE: Most plans charge 1 to 2 percent above prime, which means currently 401(k) loan rates are as low as 4.25%. Loan payments are deducted from your paycheck. You can still contribute to your 401(k) plan while you’re repaying the loan, so you don’t have the issue of lost opportunity, but you do have to pay that interest.

Q. Since taking out a loan on your 401(k) doesn’t impact your ability to contribute to the fund and since interest rates are so low right now, why shouldn’t we take out a loan for our son’s college education?

Stephanie from El Paso, TX
Submitted via online contact form

ELLIE: There are a number of reasons you should avoid a loan including the fact that it could leave a considerable and even permanent dent in your retirement plan. Most borrowers reduce their contributions or discontinue them so they’ll have enough money to make repayments—it’s just what happens. Also, if you’re laid off or quit your job, the entire balance become due, which could be a double whammy if you suddenly become unemployed. Most employers require repayment within 60 days of leaving a job.

Q. I may be losing my job and I have a loan on my 401(k). I’ve been told I have to pay it back and I don’t see how I can possibly do that. What will happen and what recourse do I have?

Ted Thompson from Denver, CO
Submitted via blog

ELLIE: So sorry to hear about your job situation. If you cannot repay the loan, it becomes a distribution, which means you’ll have to pay taxes on the money, plus a 10% penalty if your under 59 ½. You should go see a free credit counselor at nfcc.org in order to see about paying all your creditors while unemployed.

Q. I’m not real knowledgeable about investing and the stock market. Right now, I’ve been offered two different jobs and part of my consideration includes their respective 401(k) plans. How do I know if a 401(k) plan is any good?

Robert Kavanowsky
New Jersey

ELLIE: Your plan should offer a well diversified mix of low cost investment choices. An employer match is a plus because employees tend to save more when their company kicks in money. So check the amount they are offering on the match. Investment guidance and regular, personalized report cards to show you whether you’re on track are important parts of a great 401(k) plan. Look for a company that is holding the total fees in their plans to well below 1% of assets each year. It’s important for you to choose the managed portfolio in your plan that not only offers low cost index funds, but also suits your retirement plan. If you are a younger worker, under 30, then you might want to go with an aggressive growth fund that is heavily tilted toward stocks, but remember that it also has more risk associated with it. If you are over 55, then you will want to select a fund that is income heavy in order to assume less risk.

Q. How much of my salary should I be putting away each month?

David Johnson, Biloxi, MS

ELLIE: Probably more than you are socking away now! Most employees are saving 7% a year or less and employers that offer matching contributions typically kick in 3$ of pay. That isn’t enough. The old rule of saving 10% of your gross pay was designed in the days when ore people had access to traditional pensions and employer provided retirement savings. In today’s world, you’re pretty much on your own for retirement and should be putting away 15% of your gross salary, including any employer contributions. Workers are permitted to put up to $16,500 in retirement accounts in 2010 and those 50 and older can squirrel away an extra $5500 in catch up contributions. You should have about 11 times your annual salary, on top of Social Security benefits if you want to maintain your current standard of living. So if you make 50K, then you need to save 550K by the time you retire.

Ellie Kay

America's Family Financial Expert (R)

Raiders of the Lost 401(k) - Loans? Withdrawals? Good or Bad?

Ellie was on ABC News and KLOVE discussing the attack facing 401(k) accounts.



The 401(k), which has long been known as the ticket to retirement for millions of Americans is under attack from within and has taken a hit in recent years. In the second quarter of this year, a record 2.2% of participants in 401(k) plans took hardship withdrawals from their savings, which is up 2% from the same figures available a year ago. What is the long term impact of raiding your 401(k)?

Q. The news about early withdrawals on 401(k) plans is worrisome and yet thousands of participants are making these decisions in increasing numbers. Why do you think people are taking the early withdrawal?

ELLIE: I think that it is worrisome when you are borrowing on tomorrow’s retirement to handle today’s financial issues. But I think that the vast majority of those who are taking this money out are doing it to pay their bills. Some have had their hours cut or maybe a spouse has lost their jobs. Others have seen their kids college fund shrink to where they cannot afford to pay tuition for this year and they’re raiding their 401(k)s to pay that hefty bill. It’s just a sign of the hard economic times in which we are living. Our parents’ generation tended to work for someone who gave them a pension check for the rest of their lives. This means that current workers may not have been raised with the mindset that they control their own pensions and need to make funding their own retirements a priority. There’s an alarming trend that involves looking at 401(k) accounts as “now” money when it’s really “later” money, that really must be saved for later.

Q. Aren’t there certain stipulations associated with a 401(k) hardship withdrawal? How easy is it to get?

ELLIE: I think that the increased percentage of those who qualify for an early withdrawal indicate the financial strain that many families are facing because this kind of withdrawal is not easy to get. Under IRS guidelines, 401(k) administrators can grant hardship withdrawals only for specific reasons, including tuition payments, the purchase of a primary residence, unreimbursed medical bills and prevention of foreclosure.

Q. The IRS has guidelines for hardship withdrawals, can companies also impose additional limits on their employees?

ELLIE: Yes, and in most cases the company rules are even tougher than the IRS. So if that number of Americans managed to actually secure a 401(k) hardship withdrawal, then it is a huge indicator of how the financial difficulty that many Americans are currently experiencing in our present economy.

Q. Of all the reasons you mentioned for taking a withdrawal, what is the number one reason that participants are raiding their 401(k)?

ELLIE: The number one reason is to pay the mortgage in the face of a foreclosure. In the second quarter, nearly 10% of households with a mortgage were at least one payment behind on their loans, this is according to the Mortgage Bankers Association report that came out last week. Families who feel they may lose their homes often believe they have no choice but to tap their retirement savings. But many of those families have not yet exhausted all their resources. If it’s a short term problem, then talk with your mortgage lenders and see if they will suspend or lower your payments over the next three to six months until you are back on your feet again. They can also go to MakingHomeAffordable.gov, which is a federal government website with the goal of helping families by providing free HUD-approved counselors who can help you modify your mortgage. These are far better options than raiding your retirement fund.

Q. What about those families who are tapping into their 401(k) to pay tuition, you say this is a very bad money move, why?

ELLIE: As a mom with three kids who have graduated from college, two kids in college and two more headed toward college, I believe I can speak to the importance of getting that college degree. That having been said, I still think that those families who pay for tuition with their retirement dollars have their priorities wrong. There are other ways to pay for college, including taking a year off and working, going to a junior college for a couple of years, getting funds through an internship or work/study program or even getting a loan. You can get a loan to fund college but you can’t get a loan to fund your retirement. I never think it’s wise to borrow on your own future to pay for your child’s short term goal.

Q. What are some of the taxes and other penalties that arise when you take a hardship withdrawal?

ELLIE: These taxes and penalties are the main reason I say that it’s not a good idea to raid your 401(k) and one of the primary reasons is that, depending on your tax bracket, you could end up giving a third or more of your money to the IRS. You’ll have to pay income taxes on the entire amount of your withdrawal, at your ordinary income rate. And if you’re under 591/2, you’ll also have to pay a 10% early withdrawal penalty. Since the average age of those who took the hardship withdrawal in the second quarter was between the ages of 35 and 55, this tells us that most workers who took the cash are paying the penalty!

Q. You also say that there is an intrinsic “opportunity cost” that arises at the time of withdrawal, what is this cost?

ELLIE: When you take a hardship withdrawal, you’re prohibited from contributing to your 401(K) PLAN FOR SIX MONTHS! That means you’ll miss out on any investment gains you could hae earned by contributing during that period. You’ll also miss out on the company match, which is a guaranteed return on your investment and depending on the match, it’s usually much more than what you can earn in the market if you made your own investment. For example, if your company matches 50% of what you put into the account, you just won’t find another investment out there where you would get a 50% return on the money you put into that investment. So there’s a double jeopardy penalty associated with early withdrawal. You’ll pay for it now and you’ll pay for it later---then at retirement, you’ll pay for it all over again because you won’t have that money in the account.

Q. What about the fact that you can deplete an asset that is off limit to creditors, how does this impact a participant?

ELLIE: While raiding an account to avoid bankruptcy or foreclosure is a well intentioned money move, it’s also foolish because if you end up in bankruptcy anyway, then you’ve passed up the benefit you have in the fact that most retirement accounts are protected under bankruptcy laws in most states. And when it comes to 401(k) accounts specifically, it’s important to know that when filing for bankruptcy protection, creditors will go after your assets to repay your debts but federal law protects your 401(k) from creditors.

Ellie Kay
America's Family Financial Expert (R)

Bail Your Kids Out of Debt? Marry a Slacker? Co-Sign A Loan? - Ellie Kay's Q&A

Ellie was on ABC NEWS, and others stations across the country again this past week. All the following people who asked questions will get a free copy of The Little Book of Big Savings!

Here's her answers to your questions:

Q. Our son is only 20 and has $4,000 in credit card debt. He’s not able to pay and wants us to bail him out. I warned him about his credit cards because I made the same mistake when I was in my 20s and he didn’t listen to me. But I feel like a bad parent if I don’t help him out. What do you recommend?

Tim from New Mexico
Submitted via Facebook

ELLIE: Sorry to hear about your son's decisions, Tim. NO, you should NOT bail him out. It sets a precedence and you'll have to do it again (or do it for other kids, friends or family members). You can come alongside him and help develop a recovery plan. Or, offer to go with him to a free financial counsling center. Go to my free tools and click onto the section about consumer debt for more help. Your love for your son is unconditional, but your money is conditional. He made his own choices, now he has to deal with the consequences. You'll support him emotionally, but you won't fund his mistakes.

Q. Our daughter has a used car that we bought her when she was 18. She’s now 22 and newly graduated with a $30,000 a year job. She has to pay rent, insurance and all her living expenses and wants to buy another car. The one she has now runs just fine, but since she got a new job she wants a new car. However, we would have to cosign on it, what do you think?

Christine Thomason, Minneapolis
Submitted via Facebook

ELLIE: Congrats, Christine! You raised a baby girl who not only graduated from college, but also found a good job right away--well done! Now, the next step is to help her learn delayed gratification. She WANTS a new car, she doesn't need one. The fact that she needs a co-signer indicates the bank does not consider her a credit worthy risk--neither should you. Instead, encourage her to set aside $350 to $500 per month (whatever her car payment would be) for a year. Then, she can sell her existing car, buy another nice USED car and pay cash. If she saves this way for another year, she can sell the 2nd car for a nicer used car (using her saved cash) and still pay cash. This way, she's driving her "dream car" for free with NO car payments!

Q. We have two kids that are 14 and 16 and are on competitive basketball teams. They take a bus two to three times a week to tournaments and other competitions. We have to pay for their meals on the road and they are burning through our cash constantly. They’ll spend $15 or more (each) for a fast food meal and we’re going broke. Is there a way to motivate them to cut back on how much they spend?

Thomas Evers, New York
Submitted via email

ELLIE: Thomas you've found yourself in the place where you are getting played by your kids. I know what it's like, I've found myself asking: "How did I get here?" when it comes to my teens running over me with their personal agendas. It's time to regain your lost ground and be the dad. Tell your kids that you are putting them on a food budget and they will now have $10 (each) to spend on fast food. If they were eating in a nice, sit down restaurant, it would be different. But they're not. Tell them if $10 is not enough, they can bring a sack lunch on road trips or pay the extra expense with their own money. Either way, they're not going to starve and you won't go broke.

Q. Our oldest daughter is suppose to get married in December. She is 24 with a good job and her fiancée is 30, has a degree in electrical engineering but doesn’t really have a job. He drives a truck off and on. It’s spooky, because when I got married, it was a similar situation and we ended up divorcing because I was the main breadwinner and he couldn’t hold a job. I don’t want her to make the same mistake. Do you think a couple has a “right” to know about each other’s finances and attitude toward money and work before they get married?

Donna Michaels from Oklahoma City,
Submitted via blog

ELLIE: History has a way of repeating itself. There are so many red flags in this situation, that you are right to be concerned as a mom. First of all, your daughter needs to go to premarital counseling with her fiancee and stress with the counselor that they want an emphasis on financial issues. If her fiancee will not go, then I think she should postpone the wedding. A couple of facts are clear: he is well educated and underemployed. The reason might be something legitimate like "the economy" and counseling will make that clear. But the other reason could be that he's unmotivated when it comes to providing a living--in other words, he could be a slacker. So if your daughter wants to be the main breadwinner and face a life of living with a man who is underemployed, then keep the December wedding date. Otherwise, get the wisdom of a third party involved to determine the real reasons for his unemployment.

Please submit your questions and if I answer them in a blog, I'll send you a free copy of The Little Book of Big Savings!

Ellie Kay

America's Family Financial Expert (R)

What Should You Teach Your Three Year Old About Money?

Here we have the world's cutest four year old, three year old and 7 month old! But what should they be learning about money right now?

So how do you raise a kid that owns his car, debt free, owes no credit card debt and has a 760 FICO score upon graduating from college (no student loan debt) at the tender age of 22? We've been able to raise a kid (or two or five) that are financially fit. We still have some at home that we're working on! But you can raise financially literate kids, too!

It starts with a "Fiscal Report Card" and checking off what they need to know at various ages. Here's a partial report card you can review and if you want the full version (for free) just email assistant@elliekay.com and put "Fiscal Report Card" in the subject line.

Youngsters

Age 2 to 4
• Picks up toys cheerfully
• Is on a schedule for sleep, play, and work (or school)

Age 4 to 6
• Makes bed in a basic way (not necessarily neat)
• Picks up room regularly
• Brings clothes to hamper
• Knows how to set and clear the table
• Knows how to take out the trash


Middlers

Ages 7 to 10
• Knows how to sort laundry into whites, coloreds and darks
• Can fold laundry and put it in everyone's room
• Is given an allowance
• Has a savings account at home and at a bank
• Manages a fun kid budget (restaurant, zoo, amusement park, etc)


Ages 11 to 12
• Begins to do additional "jobs" for hire within the home and occasionally for friends or family.
• Has a savings account with at least $200 to $250 in it.
• Is learning the meaning of delayed gratification
• Can save up for half of a larger ticket item they want (bike, skates, video game, etc)
• Is regularly contributing to a community organization either through volunteer hours or donating goods (clothing, toys, money)

Teens

Ages 13 to 15
• Can manage and balance their own checkbook with supervision
• Has enough in savings to take out $200 to $300 to start a mutual fund
• Is able to do outside jobs for hire among approved "employers" in the neighborhood
• Regularly pays for outings (movies, theme parks, etc)
• Is saving for a vehicle
• Is aware of the fact their grades in high school will impact their ability to get into college and earn scholarships for college


Age 16 to 20• Can balance a checkbook without supervision
• Has an additional credit card (on parents account) and can use it responsibly
• Can manage and balance a clothing budget and personal financial budget
• Regularly works inside and outside of the home during breaks from school
• Has paid for 1/3 to 1/2 of the cost of their car
• Maintains a good GPA (or what they are capable of)
• Has a regular volunteer position (hospital, coaching, church involvement, etc)
• Can use social media to learn ways to save money

What are you doing with your kids that is working? Let me hear from you!

Ellie Kay
America's Family Financial Expert (R)

Atonement - How to Keep Your Kids from Making the Same Mistakes You Made

Can you atone for the financial mistakes you made and keep your kids from making the same errors? This week in national media, I'm talking about how to help your kids make right financial choices. Here's my main talking points.


Statistics indicate that the majority of high school graduates cannot pass a basic financial literacy test and end up accruing $3800 in consumer debt in college. In fact, a 2010 American Express survey of parents with children between the ages 6-16 revealed that:

• 71% of parents say their children understand we are in a recession.
• 91% of parents say they are committed to instilling lessons of financial responsibility upon their children, with 62% giving their children a weekly allowance.
• One in five children (20%) has indicated to a parent that "maybe we shouldn't buy that due to the recession."

Q. Ellie, in a day where foreclosures abound and consumer debt is at an all time high, there are many parents who are watching who want to help their kids avoid the mistakes they made. Have you ever made any financial mistakes?

ELLIE: Yes, I’ve “been there/done that” and have the t-shirt to prove it. Our family had 40K in credit card debt when we were first married even though my husband had a good job. There were a couple of weeks when we didn’t have money for groceries, things were so bad. We were able to change our ways and became financially healthy and we don’t want our kids to make the same errors we did.

Q. Why do parents need to take responsibility for teaching our kids good money management, aren’t there new financial literacy programs, such as Jumpstart, that are making a difference?

ELLIE: I’ve spoken at Jumpstart conventions and they are a fantastic organization, but these programs aren’t available in every school and it’s up to parents to take that responsibility. In fact, I think that one of the greatest things we can do for our kids is to teach them about money management, something they don’t learn in the classroom. Since the number one reason cited in divorce is “arguments over money” teaching our kids to be financially literate can even help them in their future relationships.

If they don’t have to worry about debt, they know how to manage a budget and they learn smart ways to save money, then we’ve given them the best gift possible. We all know that kids learn most about how to manage money from their parents. And parents have a huge opportunity to teach kids healthy money management habits at an early age so they don’t make the same mistakes we made.

Q. What are your favorite ways to give your kids financial responsibilities without losing control?

ELLIE: There are several options out there for parents looking to stay in control of family spending while still extending financial empowerment to their teens and young adults. One of the things we’ve done is to teach our kids from a young age that if they “borrow” money from us, they pay it back at their next allowance, thus developing the habit of not carrying a balance from month to month. This concept is most closely identified with the Charge Cards that we have with American Express. In my work with their consumer education area, I decided to add additional cards with custom limits to our own account that is in the children’s name so we can teach them about the smart use of plastic and they can never spend more than the limits we’ve placed on the card. One of the reasons I believe in a charge card is that you have to pay it off at the end of each month. These cards are on the parents' account, not the teens, but we can go online and see how they spend the money and we can also set limits for each additional card. Once they turn 18, these cards, while still under our account, can be also used to develop our child’s FICO score.

Q. What are some of your favorite money management tactics?

ELLIE: One of my favorite money management tactics is to teach kids the art of managing an allowance. By getting an allowance, kids learn to manage their own money while they are still in our house and have the freedom to fail under our safety net. We teach them to give, save and spend smart. We’ve also used the tactic of a “Fun Kid Budget” where we set aside a certain amount for trips to the movies, zoo or an amusement park. They manage the money we’ve given them for the fun outing and the key is: they get to keep what they don’t spend. As they get older and become teens, their budgets expand to include a school supply budget, clothing allowance and a gasoline budget. A great option is to put their designated amount on a American Express PASS , which is a prepaid, reloadable card that once again, we control. That way, we don’t have to worry about them taking cash to the mall or using our debit card and the funds can be replaced if the card is lost or stolen. It’s like driver’s ed for the teen’s wallet but parents are in the driver’s seat.

Q. You have a “Family 401(k)” how does that work and what age do you start this kind of savings program with your children?

ELLIE: A “Family 401(k)” is a program where our kids have to earn half of the money for a large ticket item that they want such as a bike, videogame, roller blades, skateboards, etc. It may take months for them to earn their half, but once they’ve earned it and purchased the item, they take far better care of it than if we just bought it for them outright. They worked hard to earn their half so they’re going to make sure that videogame doesn’t get scratched and that they don’t leave their bike out in the rain. They can start this program as young as 6 or 7, depending upon the maturity of the child and their math skills. I remember our daughter, Bethany, saving for 8 months to get an American Girl doll, she was only seven years old but she was so proud of it and took such good care of it that it’s still in good shape and she’s now 20 years old!

Q. How can activities like back to school shopping help parents teach kids about money management?

ELLIE: A recent survey that examines consumer back to school spending intentions, notes that 39 percent of Americans plan to spend more on back to school shopping this year than in 2009, yet the majority (63%) say they will have a set budget and virtually all parents (94%) say they will look for ways to be resourceful and stretch their dollars.

I come alongside my kids and teach them how to compare prices, recognize quality and shop the sales, even using a coupon on some of these items. For our teens, we let them use our smartphone while in the mall to local coupons and the best deals that are accessed on the phone and used at the register. For example, retailmenot.com will list coupon codes and special deals. The fact that we’re using their “language” which is technology drives the financial lesson home in an upbeat and lasting way.

One of the other things we do is to teach them that “we pay for the item but you pay for the brand.” So if my son wants the latest Air Jordans, then we tell him we’ll pay $50 for the tennis shoes and he pays the additional $70 (for a total of $120) for the brand. It makes them realize what’s a need and what’s a splurge, then they can decide if it’s worth it to spend their own hard earned money on a brand.

If we can help our kids do better, then you can, too!

Ellie Kay
America's Family Financial Expert (R)

Red, White and Scammed - Part II- Answering Your Questions

Here's a blast from the past--when our children were little & white tights were in!

This is part two of a series that is an effort to help military families. I've been on ABC News and KLOVE these past two weeks, answering your questions.

Here's a transcript for those of you who asked--Be sure to pass this link along to your military friends!


Q. Ellie, you came to our Army base to speak last November and I think that your message really helped me get through my husband’s deployment. Thank you for the work you are doing with military families. I did have a question about ordering items online. You showed us how to pay 40% less by using some websites, but how do I know if the website is legitimate?

Steph from Rothenburg, Germany
Submitted via online contact form

ELLIE: Steph, thanks for writing and thank you for what you do as a military family member, I admire you so much and know it’s a hard job! To avoid getting scammed online, make sure that you never respond to an email inquiry, but you find the site yourself on your own search. Then, go to BBB.org to make sure they aren’t listed and also check out the FTC.gov, plus the Internet Crime Complaint Center at IC3.gov, to investigate complaints against the company.

Q. I’m 19 and have been a soldier for 18 months. There are quite a few of my friends who regularly go to the payday loan business that is right outside our base. I keep telling them that they are losing a lot of money by getting a pay advance, but they say the interest rates are low and it’s no big deal. What do you think?

"Private Benjamin" from Ft Bragg
Submitted via Facebook

ELLIE: Private Benjamin, thx for your service and you’re the smart one. Tell your friends that some of these payday loan companies are charging as much as 500% interest. Even though the Defense Authorization Act of 2007 put a cap of 36% on interest loans to military members, many of these companies skirt the law by added exorbitant fees and calling the loans “revolving lines of credit” instead of payday loans in order to bypass the law.

Q. My husband’s hazardous duty pay was backlogged by red tape and didn’t arrive early enough for us to pay our bills. How am I supposed to pay things like our car loans while he is in the Middle East if I shouldn’t go a payday loan center?

Justine Long, Fort Drum, NY
Submitted via Facebook

ELLIE: In situations like yours, there are resources as near as your Army Community Services center where they can offer free financial advice. In extenuating circumstances, such as yours, you might even qualify for special programs offered by the Army’s charity, Army Emergency Relief or the AER. By going to these legitimate resources, you can avoid getting ripped off.

Q. Our community here in Alamogordo, NM is very supportive of the military and so is Las Cruces, which is a little further down the road. Many businesses carry banners that say, “we support our military.” Even so, a friend of ours bought a car from one of these places and it turns out that the dealership didn’t own the title and then went out of business. Now our friend has an $12,000 loan to pay and no car to show for it! How can we avoid being “taken” and who can we trust?

Heidi Rothenburg, Holloman Air Force Base
Submitted via blog

ELLIE: Heidi, I’m so sorry to hear of that situation, especially from a business that advertises its support of the military. Unfortunately, auto vendors are a huge source of complaints. In most cases, the salesperson will offer you “easy credit” but you pay jacked up prices, hidden fees and interest rates of 15% to 20%. Military financial counselors have files full of horror stories. Bad dealers have taken cars in trade, promising to pay them off and then they go out of business, leaving service members with two payments. Go to BBB certified dealers and if the deal sounds too good to be true, just walk away, because it usually is. Or go to your base's ACS, Airman & Family Readiness Center or Fleet and Family Support Center for local financial counseling.

Q. My daughter just got commissioned with the Marine Corps and I’m concerned about the possibility of someone taking advantage of her financially. Are military members bigger targets for fraud than civilians?

Sue Simpson, Stillwater, OK

ELLIE: Military members have guaranteed paychecks and won’t ever get laid off. This makes them good credit risks. But it also makes them targets. Some people see the military as cash cows and they want to get their cut. One of the greatest evidence of this fact is that outside of any large military installation, you’ll see businesses that offer payday loans, pawn shops, and check cashers. These are the kinds of businesses that prey on unsuspecting military.

Stephanie, Phoenix, AZ
Submitted via email

Thank you to those who serve!

Ellie Kay

America's Family Financial Expert (R)