Rising U.S. mortgage rates could be exported to Canada & even Europe

Why has the U.S. 15 yr. and 30 yr. fix mortgage rates gone up half a percent?

You can blame President-elect Trump who promised to reduce the corporate income tax from 35% to 15%, reduce the tax on repatriated profits from abroad from 35% to 10% and reductions in personal income tax rates. This clearly points to substantial federal deficits. The economic laws of supply and demand apply to bonds. Increasing the supply of bonds being sold results in bond prices going down and yields going up. The bond market has already reacted by selling off on expectations of higher deficits and more bonds coming to market.

Now the average Canadian homeowner whose mortgage comes up for renewal in 2017 may not understand why fix mortgage rates are on the rise. After all, the Bank of Canada decision last Wednesday was to hold the overnight lending rate at one half per cent. This rate has remained unchanged since July 2015. Market watchers believe that the Bank of Canada will not follow the Fed in raising rates in 2017 due to slower than expected economic growth in Canada.

The problem is higher bond yields in the U.S. has also cause a selloff in Canadian and European bonds. Some money has moved from Canadian bonds to the United States. Since fix rate mortgages are closely tied to bond yields, mortgage rates in Canada could also be on the rise. Some banks like the Royal Bank has already raised some mortgage rates.

The Royal Bank changes affect new customers with fixed rate loans for terms of three, four and five years. The fixed rate for three years rises from 2.69 per cent to 2.79 per cent, four years goes from 2.79 per cent to 2.89 per cent and five years rises from 2.94 per cent to 3.04 per cent Nov 15, 2016

Is this only temporary or is it the start of higher mortgage rates to come?

My big concern is that the bond selloff could continue. It really boils down to Trump’s agenda during his first hundred days in office. Will the fiscal stimulus for infrastructure, between $500 Billion and $1 Trillion, be passed early in the Trump administration? Where will that money come from, selling more bonds?

It appears the Fed is behind the curve regarding interest rates. Bond investors have already pushed interest rates half a point higher but the Fed is expected to raise rates by only a quarter point next week. Will they try to catch up or even change their views about keeping short-term rates lower for longer?

Be aware, higher U.S. bond yields could have a far reaching effect beyond just U.S. mortgage rates.

 

 

 

 

 

What negative interest rates mean for investors

 

The tepid recovery from the Great Recession aggravated by market volatility in financial and commodities markets, has spurred calls for negative interest rates as a policy tool. Negative interest rates can be implemented by charging banks that hold excess cash deposits at central banks.

In theory, this would encourage banks to move from sitting on cash to loaning it out, which ought to lead to more consumer and business spending. In this regard, the mechanism by which negative interest rates might impact the economy is no different than how a cut in interest rates from two to one percent ought to stimulate the economy. But what often gets lost in this discussion is what happens to the average investor and the outcome isn’t pretty.

Falling interest rates should increase stock prices and low rates over the past few years has boosted equities. That’s because when rates drop, investors have to buy stocks, usually high-yielding ones, to make any money. However, that’s not what’s happened in regions that have already gone negative.

In June 2014, the European Central Bank’s deposit rate was cut to –0.1 percent. Since then, the iShares MSCI EMU Index ETF, a security that tracks an index composed of large and mid-cap companies located in euro zone countries, is down nearly 30 percent.

Switzerland imposed negative rates in December 2014, the iShares MSCI Switzerland Index ETF has fallen by about 14 percent. Sweden entered minus territory in February 2015, and its market has dropped by 20 percent. The only market to see a gain since introducing negative rates is Denmark, with the iShares MSCI Denmark Capped ETF up 94 percent since July 2012.

Of course, the U.S. is far larger than many of these markets, so what happens there may not happen in the U.S. markets. Why? A big reason is that negative rates do not instill confidence in the economy. If people are nervous, they won’t borrow and spend.

Negative interest rates can make people think the economy is tanking, they may just keep their money safe in a bank account instead of spending it on goods and services. The mere talk of negative rates could discourage businesses and consumer from spending as much as they normally would. If they do hoard cash, then company earnings would fall, taking their stock price down with them.

The danger of negative interest rates

It’s unlikely that financial institutions will make people pay for storing money in an account unless they want to risk a run on the bank. However, banks could increase fees for other services to help offset what they have paid to store their money at a central bank. Plus, the banks will earn less money and therefore have less capital to make loans.

Another problem is that low rates have already made stocks more expensive than their historical average, which means that equities as an alternative to bonds isn’t as attractive as it once was. Sure, someone can still get good dividend payouts, but they’re now paying more for those companies.

For example, Procter & Gamble has a dividend yield of 3.27% and trades at a forward price to earnings ratio of 20 times. However, their earnings are only growing at less than 5% per year. The six month chart below illustrates how investors are being pushed up the risk scale searching for yield.

I believe that the rise in the stock market has a lot to do with share buybacks. If borrowing costs get low enough, more companies will simply issue debt and use that money to buy stocks. This is attractive for dividend-paying companies, who would then only pay dividends on a fewer number of outstanding stocks.

Savers are also at a big disadvantage in a negative-rate environment. It’s hard enough to make money in a savings account today, but if rates are effectively zero, then it will be impossible to generate any return on cash. That means young people just won’t be able to save enough to buy a car or purchase their first house.

We are navigating waters that we have never traveled on before. You might think that it would be stupid to say “cash is king,” but cash is king when your other option is taking on too much risk in the markets and where there’s no academic theory on what happens when rates go negative.

 

 

Fear of Investing illustrated by South Park

A financial advisor who is a member of my investment club showed me this video at our last meeting. It is a perfect example of why so many Canadians fear investing.

CIBC recently release a new report that Canadians are holding a record of $75 billion in extra cash and continue to sock away money at a rate not seen in more than four years. Normally that extra money would be invested in equities, but the study found that nervousness over volatility in the markets has many Canadians reluctant to take the plunge.

I remain bearish on Canada!

 

 

 

The Rule of 72

 

Have you ever wanted to be able to do compound interest problems in your head? Perhaps not… but it’s a very useful skill to have because it gives you a lightning fast benchmark to determine how good or not so good a potential investment is likely to be.

The rule of 72 is a great math shortcut to estimate the number of years required to double your money at a given annual rate of return. The rule states that you divide the rate, expressed as a percentage, into 72:

Years required to double investment = 72 ÷ compound annual interest rate

This formula is useful for financial estimates and understanding the nature of compound interest. Examples:

1. At 6% interest, your money takes 72/6 or 12 years to double.
2. To double your money in 10 years, you need an interest rate of 72/10 or 7.2%.
3. If your country’s GDP grows at 3% a year, the economy doubles in 72/3 or 24 years.
4. If growth increases to 4%, the economy doubles in 18 years. Given the speed at which technology develops, shaving years off your growth time could be very important

You can also use the rule of 72 for expenses like interest or inflation:

1. If you pay 18% interest on your credit cards, the amount you owe will double in only 72/18 or 4 years!
2. If inflation rates go from 2% to 3%, your money will lose half its value in 24 years instead of 36.
3. If college tuition increases at 5% per year (which is faster than inflation), tuition costs will double in 72/5 or about 14.4 years.

Rule 72 can help explain why interest rates are so low in most world economies. Let’s take the U.S. for example; the current deficit is around 18 trillion dollars. At 2% or less for yields on government bonds means the U.S. debt level would take 36 years to double. (72/2 = 36 years) Raising yields back up to the 4% level would only give the government 18 years to deal with the debt problem. (72/4 = 18 years)

The Fed has been overly cautious with its interest rate policy because raising rates not only effects the U.S. government’s ability to pay down debt but other countries who have loans in U.S. dollars. The low interest rate policy has a dual propose. It gives governments more time to fix their debt problem and hopefully it will increase economic growth. More GDP growth equals more tax revenue so that governments can balance their budgets and pay down their existing debt.

In the investment world, low bond yields has forced investors into buying more stocks. The difference between getting an average 8% compound rate of return compared to say 6% over 36 years is substantial. It is why most financial experts advise young people to own more stocks than bonds in their retirement accounts. Another easy way to increase your investment returns is by reducing fees in the mutual funds or ETFs that you buy! Wouldn’t you just love to get a 12% compound rate of return on your investments?

You don’t have to be Einstein to succeed financial. All you need is some basic math skills or  just use a good calculator.

 

 

 

 

Inflation: Why Do Prices Increase?

My last blog post “Back to the Future: Investing in 1985 verses 2015” contained some consumer items priced in 1985 dollars. A blogger friend of mine posted a comment asking some interesting questions regarding inflation. Understanding inflation is really important to your financial well-being. So, why is cost of a house, car or food more expensive today than 30 years ago?

According to my economics professor there are two types of inflation:

Demand-Pull Inflation – is simply too much demand and not enough supply of a product or service. A good example would be Disney raised its prices for a yearly pass at its California theme park from $700 to $1,000 because of overcrowding. Other factors that could sometimes increase demand is government spending. China drove commodity prices higher with massive spending on infrastructure. Some economist believe that money printing by central banks or tax cuts could cause inflation “too much money chasing too few goods.”

Cost-Push Inflation – is when prices have been “pushed up” by increases in costs of producing a product or service. These costs include wages, land, materials, energy and capital. A good example was the 1979 oil shortage crises that resulted in a spike in energy costs. The Fed Chairman, Paul Volcker, had to raise interest rates to 20% to stop inflation. Other factors that could add to cost push inflation are taxation and regulations from different levels of government. Plus research & development costs associated with bring new products to market.

Now the world is far more complex than what is in the pages of my economic text-book. The “Great Recession” has thrown the world into a long deflationary cycle. Everyone loves a bargain. The problem is that wages have also dropped. Many high paying jobs have disappeared in construction, manufacturing, oil & gas and mining industries. They have been replaced by part-time work and lower paying jobs. Although the rate of inflation is lower, consumers have less disposable income to spend.

Most of the world’s central banks are now trying to inflate with low interest rates and reducing the value of their currencies. However, all this printing of money hasn’t convince consumers to open their pocketbooks and spend! Instead, these measures have inflated stock prices. (The rich are getter richer)

Here are some ways that this information may improve your financial well-being:

1. The cost of a college education has a text-book demand-pull inflation factor. If you have an education savings plan, you may want to underweight bonds and overweight the stock portion of your portfolio.
2. House buyers should look at neighbourhoods that are in high demand to ensure that their house will increase in price over time. (Toronto & Vancouver are examples of two Canadian cities where high demand has kept house prices rising)
3. Readers of my blog know that I have recommend avoiding investing in oil & gas stocks as well as other commodities. Too much supply combine with weak demand have caused prices to fall resulting in lower corporate revenue and profits.
4. Even today’s low inflation rates are eroding the purchasing power of your money sitting in saving accounts and in short-term bonds. The interest that you earned is below the rate of inflation. Investing in dividend paying ETFs or stocks maybe a better option.
5. Inflation is good for borrowers who use the funds for items that increase in price. Not so good for items that are falling in price. Paying down debt is more important during deflationary times. (13% of U.S. homeowners are still underwater with their mortgages)
6. Stock pickers should look at companies that have strong pricing power or the ability to lower costs of production. (Some consumer brands sell their products at higher prices than their competitors)

 

The government measures CPI based on the Average Price of a basket of consumer goods and services. Keep in mind that the cost of living in an urban center is much higher than rural areas and there are many everyday items that are not included in the CPI basket.

Living in Canada, my annual golfing trip to Orlando with the boys is going to cost 15%  more this year, thanks to our falling dollar. 

Write a Personal Financial Plan in 7 Easy Steps

Financial plans are written, organized strategies for maintaining financial health and accomplishing financial goals. It is centered on your unique circumstances, desires and objectives. Writing a plan is easy, making some personal sacrifices and having the discipline to stick to your plan is the hard part.

STEP ONE – Define your goals – both short-term & long-term

Some common short-term goals are:

• Debt reduction/elimination
• Vacation planning
• Planning a wedding
• Home ownership – Saving for a down payment
• Family planning
• Post graduate degree
• Job retraining programs

The most common long-term goals are:

• Saving for your children’s education
• Paying off your mortgage
• Saving for retirement

 

Step Two – Organize your financial records

Create a filing system of your tax returns, bank account statements, insurance policy information, contracts, receipts, wills, deeds, titles, bills, investment accounts statements, retirement account statements, pay stubs, employee benefits statements, mortgages and any other type of document that is related to your financial life.

Step Three – Create a preliminary budget

Your budget is a starting point for determining how you will reach your financial goals, as it allows you to identify and evaluate your spending habits. Write out all of your current monthly expenses, as well as your current monthly income. Separate your budget into three categories.

What you need; food, shelter, utilities, clothing, transportation etc. What you want; mobile devices, fast foods & dining out, gym membership, beauty products, holidays & gifts, hobbies & sports etc. Savings & debt payments; credit cards, student loans, lines of credit, car payments and mortgage.

Step Four – Analyze your spending habits

Take a good look at where your hard-earned money goes. Are there any easy places that you can cut some spending? Are you willing to sacrifice your morning coffee at Starbucks or your gym membership? How about hosting a pot luck dinner instead of eating out with friends? You alone can determine between what you really need and what you want.

Try to allocate 20% of your after tax income to the saving & debt payments portion of your budget. A bare minimum of 10% in savings if you graduated with a large student debt load. If not, then you may not have enough income, have a spending problem or have too much debt.

Step Five – Set a time frame and finalize the budget

Separate your goals into different time frames, one year, five years and longer. Take a look at your savings, determine how much you need to save each month in order to achieve each goal. (Use on-line calculators for savings goals, mortgage and debt repayments)

Step Six – Devise an income strategy that will help reach your goals

Savings accounts are fine for short-term goals. Medium to long-term goals may require extra income. You could consider upgrading your skills to qualify for a higher paying job. Take on a temporary part-time job or start your own small business. You could also invest your savings to generate additional income in the form of interest, dividends and capital gains.

Step Seven – Re-evaluate your plan as necessary

It’s helpful to take a look at your plan every few months to ensure you’re on track. Is the goal still realistic or attainable? If not, what adjustments can you make?

 

Helpful Tips

1. Avoid pitfalls – Peer pressure and “Keeping up with the Jones,” make it difficult to stay on track. Comparing your life style to your family & friends is a big mistake. A common expression used for people who spend money that they don’t have is “They have champagne tastes on a beer budget.”
2. Stay focused – Keeping your focus on long-term goals can be difficult. The benefits are so far in the future, it’s easy to take a detour like putting off saving for your child’s education. It is much more fun to take the whole family to Disneyland.
3. Seek professional help – It is worth paying a lawyer for legal advice regarding wills, power of attorneys and for buying real estate. For tax saving strategies, an accountant is your best bet in navigating through a very complicated tax system. A good, low-cost financial advisor is worthwhile only if you have investable assets in excess of $150,000.
4. Keep score – Make out a net worth statement every year as a way to measure your success. Paying down debt may not be an exciting goal but seeing that debt go down each year and your net worth go up, may keep you motived.
5. Celebrate your achievements – Select an indulgence to reward yourself for achieving a goal. I wouldn’t recommend a mortgage burning party. Some friends or relatives may feel uncomfortable or inadequate about their own financial situation.

Money Saving Tip: Use Financial-Planning Apps

Trying to get your finances under control? Now you can, with just a few clicks. There are a multitude of mobile money management apps promising to handle everything. Do you need help setting and maintaining a budget? Paying your bills on time or putting aside funds for your retirement plan?

I am not tech savvy but I have read that each app contains a sophisticated technology and a user-friendly interface, making it easy to see where your money is going, keep track of your bank balances and monitor family expenses.

Approximately 62% of Americans have no emergency savings for things such as a $1,000 emergency room visit or a $500 car repair, according to a new survey of 1,000 adults by personal finance website Bankrate.com. Faced with an emergency, they say they would raise the money by reducing spending elsewhere (26%), borrowing from family and/or friends (16%) or using credit cards (12%).

The Canadian Payroll Association says things are getting tougher for working Canadians. The association said the survey found that more than half of employees — 51 per cent — would find it difficult to meet their financial obligations if their paycheque were delayed by a single week. That was up from an average of 49 per cent over the past three years.

Avoid living paycheck to paycheck, eliminate late bill payment fees, over-draft fees & credit card interest:

Level Money (free)

The goal: Live within your means

The idea here is simple: Level Money pulls in your income, then deducts recurring bills and the amount you wish to save each month, then divides your available funds into daily, weekly and monthly allowances. Each purchase is deducted, allowing you to tap into your dashboard to see how much you have left by day, week and month.

Home Budget ($4.99)

The goal: Stay on top of household spending

Sync multiple credit and debit accounts and track spending in one place with Home Budget, which also exports data to a desktop for easy analysis and syncs devices so all family members can work off the same budget.

Mint Bills (free)

The goal: Banish late-payment fees

Say good-bye to stamps and snail mail. After a one-time setup, Mint Bills sends bill-pay reminders (email or push notifications) and lets you know when bank balances are running low, so you also avoid overdraft fees. Bill pay by bank account is free; paying with your credit or debit card results in a transaction fee.

Expensify (free)

The goal: Manage your expense account

Photograph, categorize and tag your receipts, or input manually and add to any number of expense reports. Expensify also allows you to track time spent and mileage and offers currency conversions.

Bill Guard (free)

The goal: Avoid fraud

Bill Guard keeps track of all purchases and monitors hidden fees (such as that $45 annual renewal fee your gym charges each January) and allows users to report and dispute a fraudulent charge by contacting the merchant from inside the app.

This app also keeps track of month-to-month spending by category so you can see where your money is going on a regular basis. In addition, it will flag suspicious purchases and send a push notification when it does.

Saved Plus (free)

The goal: Increase your monthly savings

Can’t seem to set aside a lump sum each month for savings? Saved Plus lets you choose a percentage figure, then takes that percentage from each purchase you make and kicks it over to your savings account.

Wish to set aside 10 percent? Buy a $12 salad, and Saved Plus will squirrel away $1.20. You can set a ceiling, so that $15,000 trip to Italy doesn’t deplete your checking account.

Square Cash (free)

The goal: Make sure Junior has enough spending money

Can’t wait a few days for that check to arrive? Download Square Cash, link it to your debit card account, then draft an email, copying cash@square.com with the dollar amount in the subject line. The recipient will then get a link that lets him deposit the amount in his bank account.

Weekly limit: $250, unless you provide a mobile phone link; or provide your name, Social Security number and date of birth to access $2,500 in funds.

This is my cell phone: I have never used any of these apps so let me know what you think. Do you have any suggestions for money related apps?

Finding Yield in a Subzero World

I just got back from a golfing holiday and found this article in my in box. I have a free email subscription to Mauldin Economics which I highly recommend. I thought that this article was a good follow up to my last blog post. “Is Q.E. Actually Hurting the World Economy”?

 

April 14, 2015

“It’s basically a fee for fear.”

—Nicholas Colas, chief market strategist at ConvergEx

“It’s a glaring warning sign of deflation. We’ve never really had deflationary fears throughout such a widespread part of the world before.”

—Phil Camporeale, JPMorgan Asset Management

It would have seemed impossible a few years ago. How many of us would have guessed that US interest rates would be just a hair above zero?

The sad thing is that the Federal Reserve Bank’s zero-interest-rate policy has taken away income from savers—largely senior citizens—and transferred it to stock market investors. All those years of thrift and responsible saving have been undermined by Alan Greenspan, Ben Bernanke, and Janet Yellen.

On the other hand… it could be worse.

Worse? Interest rates are even less than zero in some countries. Yes… negative interest rates.

Sweden… Switzerland… Denmark… and the European Central Bank.

What do those four have in common? The yields on their short-term interest rates are all negative.

The European Central Bank introduced negative interest rates last year. It has been joined by Switzerland and Denmark at -0.75% and Sweden at -0.85%.

You may have no plans to invest in Sweden, Denmark, or Norway, but the universe of negative interest rates extends beyond those Nordic nations. Today, 16% of the world’s government bonds have negative yields.

Yup, investors now have to pay for the privilege to loan money to governments, for example, in Germany and France.

One day we might tell our wide-eyed grandchildren that once upon a time, governments and corporations actually had to pay the lenders for the privilege of borrowing money.

For the most part, individual savers don’t have to pay for the privilege of leaving money in the bank, but institutional customers—even in the US—are getting nailed. JPMorgan Chase recently announced it will charge institutional clients as much as 5.5% on deposits, and several banks are already charging corporate clients to hold eurodollar deposits.

Think US Rates Are Headed Higher? Wrong!

Don’t forget about Mario Draghi and the European Central Bank’s (ECB) new massive €60 billion (US$69 billion) per month quantitative-easing program.

One of the most astute central bank observers I know, Joan McCullough, says that there may not be a limit to how much QE money the ECB will spend, and she wouldn’t be surprised if the central bank took interest rates down to -5%, like the Swiss after the demise of Bretton Woods.

Instead of trying to find some logic in the actions of central bankers, let’s focus on what the free-market response by banks, pension funds, and institutional investors will be.

Short-term US bond yields are barely above zero and yields on long-term bonds are near historic lows, too.

The 10-year Treasury bond yield is comfortably below 2% and the yield on 30-year Treasury bonds recently hit a new all-time low at 2.44%—the lowest yields in the history of the United States.

Let me repeat that: The lowest yields in the history of the United States.

Furthermore, the yield curve has flattened almost back to the levels of the 2008-2009 financial crisis, so while Janet Yellen may talk tough about raising interest rates… the bond market believes otherwise.

I expect long-term interest rates to head even lower. In fact, I believe the big shock will be how low they go.

Against that backdrop, the rules about investing for income are very different today than they were in the past and why I believe that 2015 is going to be the Year of Dividend Stocks.

Finally, nobody can survive on a 0.25% return on their money, so you better become acquainted with dividend-paying stocks if you don’t want to work as a part-time Walmart greeter during your golden years.

Tony Sagami

You can get your free email subscription by clicking on the link below:

http://www.mauldineconomics.com/frontlinethoughts

 

 

 

Money Saving Tips

I find “fine dining restaurants” a waste of money. You pay extra for atmosphere, presentation and the portions are small for the price that you pay. Add a bottle of wine or a few alcoholic drinks to your eating experience and the bill quickly adds up. Avoiding expensive restaurants could save a lot of money over time.

My favourite money saving idea is a “dinner club”. We started one by chance many years ago. We were young, broke and had small children so it was difficult to keep in touch with everyone. One of the wives came up with the idea of a dinner club. It worked out great because we had five couples.

We took turn hosting with the hosting couple providing the main course. Each visiting couple would bring a bottle of wine and were assigned side dishes. The four categories were Appetizers, Salad, Veggies and Dessert. It gave us a chance to try different recipes and we ended calling ourselves the gourmet club.

It really strengthened our friendship and it gave us the opportunity to catch up on what was happening in everyone’s lives. As the kids got a little older, we included them for a summer get together. The key to our success was planning the next get together a head of time. We all brought a calendar to decide which meeting date was good for everyone. (We now use the calendars on our mobile devices)

We were all saving money but still enjoyed great inexpensive gourmet meals. You don’t have to spend a lot of money in order to have fun. Getting together with friends, playing cards or playing board games can be very entertaining. Use your imagination, my daughter and her husband started a bad movie night with their friends. They take turns hosting and the host gets to pick the bad movies. Everyone brings snacks and their favourite beverage.

Saving money is the simplest way to increase your wealth. Find some easy ways to save money without sacrificing all the fun. Once you start, you would be surprised on how quickly the dollars start to add up.

Do you have a money saving tip? Email me at ricodilello@gmail.com

Teaching Kids About Money

   

Children do not come with an instruction manual and no two are alike. I recommend teaching children about money in stages. Advancing to the next stage should be based on maturity level and not by age since some children mature faster than others.
.
Stage 1

It is important to start teaching children at an early age to be responsible for small tasks like picking up their toys, clearing the dinner table, making their beds and putting their clothes away. Give them lots of praise to emphasize that their help is appreciated.

Stage 2

Give them a weekly allowance without assigning any tasks. Encourage them to save half and let them spend the other half. Playing board games like “Life and Monopoly” is a fun way to teach them to understand some basic principles of accumulating wealth.

Stage 3

Set up a saving goal to purchase something that your child really wants. Children have a short attention span, they will lose focus if reaching their goal is too far into the future. Keep repeating the process to reinforce the concept of saving money for things that they want. (Saving to buy Christmas gifts should be included as one of their savings goals).

For expensive items, agree to pay for half the cost so that the goal is reachable. Offer them a chance to earn extra money by cutting the grass, washing the car, cleaning windows and vacuuming the house. Tasks like cleaning their room, cleaning their bathroom or walking the family dog should not be included in earning extra money.

Open up a savings account and take them to the bank to deposit their savings. Keep them focused on their saving goal by asking them to show you their savings account. (Lots of praise!!!)

Stage 4

Add a monthly clothing allowance once your children are in their early teens. Take them to the mall and show them have to do some comparison shopping. You need to set strict guidelines that the money has to be spend on clothes and not for going to the movies. Allow them to save some of their allowance to buy expensive items like a new coat. If your child wants to buy expensive brand names, encourage them to earn extra money by delivering newspapers, baby sitting or cutting neighbour’s lawns. (Be prepared to live with their style choices)

Stage 5

Strongly encourage older kids to get summer jobs and even work part time during the school year. Not only will they learn the value of hard work but it may inspire them to get a higher education. Don’t restrict them in the spending of their money. Kids do well to learn about spending as well as saving, let them make a mistake or two. Better now than later when they’re buying a house or car.

Stage 6

Helping a young adult to get a credit card depends on their maturity level and if they have developed responsible spending habits. You will need to co-sign so keep the spending limit small and make sure that they have enough income to pay off the outstanding balance each month. No job, no credit card, be prepared to cancel the credit card if they suddenly become irresponsible.

Stay Focused

Parenting is a very difficult job and it requires some tough love. Don’t give them everything they ask for and don’t feel guilty about it. It’s vital that children learn the difference between need and want. Make sure that children’s grandparents are aware of what you are trying to accomplish and support your methods.

Teaching them the value of money, setting saving goals and having a good work ethic are important life lessons. Start early, be committed and don’t give up. All the hard work will pay off someday when your children have successful careers and have the money to buy the things that they need or want. They may even thank you!