Ryan: Everyone wants to make life easy for their children, even if it means bribing their way into college. But how do we teach our kids to manage their money responsibly? Kiplinger editor-at-large Janet Bodnar tells us in our main segment. On today's show, Sandy, and I tell you how to avoid getting fooled, get it, by common scams, and we talk Apple and Vanguard in a new edition of deal or no deal. That's all ahead on this episode of Your Money's Worth. Stick around.
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Ryan: Welcome to Your Money's Worth. I'm Kiplinger staff writer Ryan Ermey joined as always by senior editor Sandy Block. Sandy, you've watched my Jeopardy appearance as did a number of our listeners. It didn't go great.
Sandy: But you looked great. And now my husband will stop telling me I should go on Jeopardy.
Ryan: Yeah, the pressure is really, really serious.
Sandy: And that clicker.
Ryan: I mean, yeah, I got shut out in the whole second part. I was shook.
Sandy: But you looked great.
Ryan: Thank you. Today, is April fool's day. And honestly, we should have come up with something like funny and quirky to do, but instead we're going to be a little bit more on the nose and we're talking about how not to get fooled.
Sandy: Right. What we want to talk about today is the many ways that people are fooled into giving up their money to various scam artists who become increasingly sophisticated. And I thought one of the most interesting things I read on the Federal Trade Commission website is that it's not just old people, that actually young people lose even more money to scams than their grandparents. And something else that I've read is that is not dumb people either. Some of the most common victims of fraud are smart people, because they think they're too smart to be scammed and they get scammed.
Sandy: Everyone has to be super cautious. One of the other interesting things we learned from the FTC is that imposter scams are the most common source of consumer complaints in 2018, and those occur when someone calls your house, calls your phone and say they're from the IRS and if you don't pay up, the cops are coming to your house. Or sometimes they'll say they're from the social security administration and there's been a problem with your benefits and you need to provide your bank account information.
Sandy: None of these people will call you on the phone. The IRS will never call you on the phone. Social Security will never call you on the phone. If there really is a problem, you'll get something in the old fashioned mail. And if you really do think it's legitimate, ask them your phone number, hang up and call back or call back the actual IRS or social security and tell them who you are and ask them if they called you. That's number one.
Sandy: The other problem that's I think even harder to avoid because I think a lot of us know that if someone calls with a heavy accent and says that we owe money to the IRS, we know. Don't mess with that. But phishing scams where you get an email saying that it's from your bank or that it's from Microsoft and your computer has been hacked...
Ryan: It's from someone in your Rolodex.
Sandy: Right. That's a problem because of the widespread security breaches from everywhere, anywhere you've ever been practically, it's easier than ever for these folks to get information about you and present a very convincing email that makes you think it really is coming from someone legitimate. And what they want you to do is click on the link and that way they get personal information, which they can use to steal your identity or do all kinds of bad things. The advice here is if you get an email asking for personal information, no matter how convincing it looks, no matter how personal it is, go to the website of the bank or whatever institution, log in independently and see if they tried to contact you.
Ryan: Or go to the source. I had one of these and these obviously have varying levels of convincing as just said. But I got one recently, it was an email telling me that a package addressed to me was either held up or soon to be delivered or there was some issue with it and I needed to click on some link to verify an address or something like that. And the thing was I was actually expecting a package. My Dad had sent some stuff to me, but it was an email from DHL, which it didn't sound like my dad would be using DHL. And so I called my dad and said, "Did you send that stuff yet?" And he said, "No."
Ryan: And so then I reported the email as phishing. But that seems to be the thing. Trust but verify.
Sandy: Trust but verify is right. And the other thing we've learned from folks who follow this stuff is that there are some common subject lines to be on the lookout for. One is password check required immediately. That always scares people. And the other one is your order with Amazon.com because who doesn't have an order with Amazon...
Ryan: Well, so there you go.
Sandy: Yeah. And the last one is happy holidays, have a drink on us. Free drinks, check it out. There's an old journalism thing if your mother says she loves you, check it out. You've not heard of that before?
Sandy: You're too young. Oh my gosh. And that should be your rule with any kind of emails you get. The final thing I want to talk about is robocalls.
Ryan: Which are inundating us.
Sandy: Oh my gosh. Everybody is getting robocalls these days. They've gone way up. They're a real problem. The advice here is no one selling you anything legitimate is going to use robocalls. Assume that they're not out there. Do not press one, don't talk to them. Don't engage them. Because that basically just tells them they've got a live person and they'll keep on calling. And I think I mentioned this in an earlier podcast, I have my iPhone set up so that the only calls that ring are from people on my contact list. So even though I'm getting robocalls they go straight... I don't hear them, so I'm not disturbed by them and then I can just check and see if they're legitimate. That's worked out pretty well for me.
Sandy: Verizon announced that it's rolling out a new tool to filter robocalls and AT&T is expected to follow. So there may be some help out there, but in the meantime, one of the problems with robocalls is they've gotten really good at spoofing, making it look like it's a phone number you know.
Ryan: I get all mine from Jersey.
Sandy: Yeah. You see the exchange and you think, "Well, that's my neighborhood." Don't. Like I said, I think the best advice here is if it's not on your contact list, let it go to voicemail. If it's someone you want to talk to, they'll leave a message and you can call them back.
Ryan: If it's important, they'll leave a voicemail.
Sandy: Right. Those are our tips today. Don't be fooled and have a great April Fool's Day.
Ryan: Yeah, be careful out there.
Ryan: When we return, we're talking money-smart kids with Janet Bodnar. Don't go anywhere.
Ryan: All right, we're back and we're here with Kiplinger editor-at-large and the author of Raising Money Smart Kids Janet Bodnar. And this college admission story is still really one of the biggest stories in the news. And it raises the question of how much you should help your kids financially. So we're here talking money-smart kids with Janet. Janet, thank you so much for coming on.
Janet: Oh, my pleasure.
Ryan: The central question here is how do you balance wanting to take care of everything for your children with having them learn financial responsibility for themselves?
Janet: Well, actually in a way that's the wrong question to ask because you never want to take care of everything for your kids. You're really not fulfilling your role as a parent if you do that. Because part of your role as a parent is the second part of your statement. It's raising your kids to be independent adults who will leave the house someday and be able to manage money on their own and have their own families and teach money management skills to their own kids. So that's really one of your goals as a parent. And if you are trying to take care of everything, you're doing your kids a disservice and you're not really fulfilling one of the key roles that you have as a parent.
Sandy: But even if you don't want to take care of everything, I think a lot of parents want to at least help their kids through the rough spots. For example, maybe if your kid graduated with a lot of student loans or has his or her heart deeply set on a school that you don't have all of the resources to cover, how do you strike that balance between really wanting to help them get ahead and not being overly generous or not messing them up in terms of making their own financial independent decision?
Janet: Well, I think you have to keep your perspective, which is very hard thing for parents to do, not just in the money management realm, but everything else too. You have to keep your perspective and you also have to ... And this is really critical, I think ... Know what you're going to do before you go in. So for example, if it's a question of the college decision, which college you're going to go to, you should know and you should communicate with your kids what you can afford to pay from your own pocket, how much the kids will be responsible for and what you will expect them to do.
Janet: It's really important for kids to have skin in the game when it comes to college education. So that even if you're in the fortunate situation, for example, of being able to cover most of the college costs, at least having them work during the summers too, to cover their own expenses, their own beer and pizza money on Saturday nights, I mean, they need to do that. If you just give it to them, and then you know this as a parent, whatever you give to them is a much less appreciated than things they earn on their own.
Janet: If your kids don't know this, then you better get them on it quickly and you better start them young. So it's a question of knowing or setting up the rules ahead of time and so that they know what the expectations are, you know what the expectations are and then you're both on the same page and you don't go off too far in either direction.
Ryan: You mentioned something critical there which is just starting when they're young, and for people with little kids, how do you go about instilling good money habits early on?
Janet: I think the easiest thing to do, and I've said this and I'll say this quote again, is you can start talking to kids about money as soon as they're old enough to know not to eat it. And I'm talking about little things, just small things. I think one of the things that parents don't do, they're reluctant to talk to their kids about money either because they feel not so confident about finances themselves or because they think, "Oh, this is a huge issue for kids and the kids are never going to understand this."
Janet: But it's just small steps, baby steps that you take with kids. It's as simple as if you have a preschooler and they're in the car when you go to the bank machine to get out some cash and they don't know where that money comes from they think it's magic.
Sandy: Comes out of the wall.
Janet: I know. If you just tell them, "Oh, the bank is like a big piggy bank for mom and dad and we put our money in and then we can take our money out." Okay. That gives them a visual image of what this is. So it's very small lessons that you start with kids. Just having a piggy bank and making them pay for their own money. My four year old granddaughter had her eye on and Elsa dress, Elsa from Frozen that she wanted to purchase and she had some gift money that she had gotten from folks for her birthday. And she needed about $5 more to buy this thing.
Janet: Right. It still has to have a home and it has to be convenient. And then when the last things is to keep decluttering ongoing on a regular basis, you have to have a process for things that you don't want. So here's one simple idea. You can put a small bin in your closet or in your kid's closet so that when something no longer sparks joy or if something's outgrown, you put it directly into the bin, instead of hanging it back up in your closet. And then once the bin is filled, it's time to donate those items.
Janet: And so her parents said to her, "Well, you could do some little jobs around the house and earn the money to do this." And that's what she did. I think the fact that she actually paid for this little dress on her own, and she did it at the age of four, it doesn't have to be a big deal, really made an impact on her.
Sandy: I think one debate I've often heard parents having in this sort of relates to what you just said is do you give your kids an allowance for doing things around the house or do you say you are a member of this household and you should unload the dishwasher because that is expected. How do you decide what to pay your kids for and what to tell them, "You need to do this because we're providing you with food and rent."
Janet: Yeah, exactly. It is. And they feel like, oh the kids are never going to listen to them. If they tell the kids that they can't have something, the kids are not going to love them anymore. That sort of thing. And I'm what I know from writing about kids and money for years and raising my own three children who are now adults, is you can make stick any rules that you want. If this is the way your family does it, you just convey your kids this is what we do in our family and they will listen to you.
Janet: And the younger you start, the more they'll listen because they're younger and they just get more used to the way you do things in your family and they're less likely to fight you than when they're teenagers.
Sandy: And does that work ... 'Cause, I mean we're in Washington DC, which is a pretty affluent area. And how do you deal with peer pressure? Maybe you're adhering to all these rules, but your kids are going to school with other kids who are talking about going to Vail over spring break and getting a whole new ski outfit to go. How do you deal with that kind of of pressure? And I think that goes into the whole college thing too.
Janet: Right. Exactly. Well, it's definitely not easy and frankly the more money you have and the more affluent your area is, the harder it is. I mean, it is, it just is. It requires a lot of discipline on your part. But that's the thing you're supposed to be keeping in mind. When you choose a school for your kids or a neighborhood for your kids, you're doing it because you want "the best" for your kids, but there are some negatives that can come with it. How are you going to deal with these issues?
Janet: Maybe you don't want your kids to go to a school that's extremely pricey because it will be difficult for you to keep up financially. And maybe that's not the best for your kid. So maybe a different school would be better for your kids. I mean, you have to face issues like this and if you're going to go all in and expose yourself to all these pressures, then you have to realize that you're going to have to be pretty strong to teach the values that you want for your kids or that you should want for your kids because it is going to be difficult if you make it difficult for yourself.
Ryan: My mom used to lay down the law and that. I would say, "Sam has a $15 allowance," or another really popular one was your age plus 10. And I never hit those kind of norms and she goes, "Yeah. Well, I'm not Sam's mom," but then I nod, flip it back on her she goes, "Bobby's out there, raking the leaves every day for his allowance." I say, "I'm not Bobby."
Sandy: Janet, I think you've written about this before. Maybe Sam's mom gave Sam a credit card when he was in high school. What are your feelings about giving kids ... At what age or should you ever give them a credit?
Janet: All right. Well, I think I'm excited to get organized ... I really believe that kids should develop credit on their own and they should get a credit card when they're old enough to ... Nowadays, of course, well there are lots of credit cards or debit cards that are promoted out there for young teenagers and I just think that's not a good thing to do for a number of reasons. First of all, it's just play money for kids. I mean, they don't really see it as real ... And think, these are kids now. These are not adults. These cards might be very good as payment options if you're a bank or payment options if you're a parent or an adult.
Janet: But these are kids, they think in very concrete terms. And so plastic is just funny money to them. And it means it's a direct line to your pocket book, whether it's a debit card or a credit card. So I think that they really have to be old enough to take on the responsibility for paying the bills. Frequently that means when they're 21, they can get a credit card on their own, you don't have to sign for it. They are responsible for paying the bills.
Janet: I just saw a study recently about how people regret ... I mean, they asked a number of parents if they had ever given or lent their credit cards to their kids, their teenagers. A certain number of parents said they had. "Do you have any regrets about this?" A lot of parents said did have regrets about this because the kids figure you're going to pay the bill and you probably will pay the bill. So I think there are ways for them to develop a credit history on their own and I think that they should do that.
Sandy: Well, let's grow up these kids a little bit and talk about what you think parents should be doing when their children are adults. We're looking, thinking about doing a story soon about parents who help kids buy a home because it's so hard nowadays. So many millennials really want to buy a home, but they have student loans, home prices are high. So a lot of parents want to do that. Some parents let their kids live at home, rent free while they're looking for a job. And it's not because of bad behavior on the part of the kids, they are just ... I think this is getting better because unemployment rate is dropping so much, but kids come out of college with student loans and other problems.
Sandy: Parents do want to help, but how do you strike that balance between giving me a little bit of assistance and not slowing their ability to become independent adults?
Janet: I think Sandy, that kind of goes back to something we talked a little bit about before and that is that the people involved, meaning you and your kids need to know the ground rules before you start playing the game. If you're going to have a child come home and live with you for a time, he shouldn't be living rent free. I mean, if he doesn't really have a job and he's looking for a job, he should be doing a payment in kind, chores around the house, cooking dinner, doing the grocery shopping, that sort of thing for you. And if he does have a job, even if it's not a very high paying job, you should be paying rent in some form or covering the cable bill or paying for something. There should be some responsibility there.
Janet: Plus the knowledge that this is a short term thing, isn't going to go on forever, and so I'll do it for six months or I'll do it for a year. Maybe they're going to school for a graduate degree. Okay. So then what is the length of the graduate degree? How long is it going to take them to get the degree? That sort of thing. So I think that that's one thing you need to do if someone is coming home. If a child is not, if a child ... And this happens a lot. At the very least, at the very minimum, parents often keep their kids on the cell phone plan, the family plan...
Sandy: Oh, yeah...
Janet: Forever, forever. But at the other end of the spectrum, especially if they move to an expensive city, they're paying the rent, that sort of thing. Again, I think that at least they're not at home, which is a good thing. They're out on their own, but there has to be some end to this. I'll do this for a certain amount of time, but then I'm expecting that you're going to take on this role. And again, that's kind of hard to do because you have to tell the kids, "Well, this is it. This is the cutoff," and not every parent is strong enough to do that.
Janet: Again, know the ground rules before you get in. Don't get into something that you can't afford, especially you're the parent, you're probably saving for your own retirement and that's critical and you do not want to impact that. Now, buying a house, that's another thing that parents frequently help their kids with, but that's kind of a major purchase. That's something that you would think about, I think, and you would plan for.
Janet: Again, you need to know in your own mind what you can afford and how much you're willing to give, how far you're willing to go and your kids, your adult kids need to know the same thing.
Janet: That depends. If you do it as a loan, as they always say, you have to be prepared not to get the money back or you have to make it a real loan. Have to have paperwork and so the kids are going to send you a check every month. Make it a formal loan, don't just say, "Oh well, I'm going to lend you this money." And then the kid says, "Oh, I'll pay you back. Yeah, right." Like when they were in allowance. "If you give me an advance on my allowance, I'll pay you back." No they won't. They'll never pay you back.
Janet: You have to make it formal if you're going to do that, I think, and you have to be prepared not to get it back and make it a gift, assuming you can afford it.
SEE ALSO: 6 Ways to Get Your Kids to Do Chores Without Paying Them
Ryan: All right, well Janet, thank you again for coming on. Wise advice as always and we'll be sure to put a lot of your work on Money-Smart Kids in the show notes for the episode. People should also obviously go check out your book Raising Money-Smart Kids. And yeah, thank you so much for coming on.
Janet: It's been my pleasure.
Ryan: Coming up, Sandy and I review new products from Apple and Vanguard. Find out if they're deals or not after the break.
Ryan: Best that ever happened to her. All right, we are back and before we go, we wanted to play another game of deal or no deal, this time with a couple of financial products from major companies that have been announced in recent weeks. And the one I want to talk about was a new mutual fund from Vanguard and lots of people are big fans of vanguard, and they just announced that they're launching their first actively managed ESG fund. So for those of us who aren't in the note, ESG is kind of ... Honestly, it's probably the biggest trend in mutual fund investing right now.
Ryan: It stands for Environmental, Social and Governance. People have heard of socially responsible or socially conscious or whatever, investing before and back in the day, these used to be funds that screen things out. They say we're not going to invest in...
Ryan: ... cigarettes, pornographers, whatever. So that was the old way. The new way is to highlight the sort of best actors in these categories. These are funds that say we're going to invest in companies who keep an eye on their environmental impact, that social is sort of treating their customers well, treating their employees well, their suppliers, and governance, things like, do we have diversity on corporate boards? And the reason that it's become so popular, and it really is in enormously quickly growing part of the investment universe, the amount of investor dollars going into these funds sets a new record every year.
Ryan: It was five point $5 billion in 2018 in a year that was otherwise sort of ho-hum for the rest of the fund universe. This is a big deal for people and why? Well, people want to invest consciously. They want investments that align with their social and sometimes political values. And increasingly, people are realizing that that doesn't mean that you're not going to make money.
Sandy: Right. And I think some of the earlier socially responsible fund, the wrap on them was that they often had high fees, and Vanguard is bringing this option to people who don't want to pay high fees, but do believe that this is where they want to invest. And I think there's also a growing feeling that this aren't just feel good funds or feel good companies, they're companies that have diverse boards, companies that invest in environmentally safe or renewable energy...
SEE ALSO: The 6 Best Vanguard Index Funds for 2019 and Beyond
Sandy: Sustainable or are making money. This is not just feeling good, this is making money. And again, making money to Vanguard way, which means low fees, very responsibly managed. So I think this is really bringing something that used to be kind of fringe to the masses.
Ryan: Yeah. I mean, it's really been a discovery that companies that practice sustainability, that treat their employees well, that treat their customers well are well run efficient businesses. I mean, ESG funds have proven to be good market performers. Just a quick rundown of the new vanguard funds. They've had ESG funds before. This is their first actively managed one. It's going to be run by a couple of managers from Wellington group, which manages a number of Vanguard funds. It's going to have a 0.55% expense ratio, which is about half of what you're going to pay at the average for ESG funds.
Ryan: They're larger this year.
Sandy: I don't have a deal. I have a no deal. To great fanfare, Apple introduced its own Apple card and this was all tied in with their big announcement and how they're going to compete with Netflix and something has been to do with Oprah that I don't really understand, but ... I know. She was there, the group was there, everybody was there. I was in LA when this was going on. So it was a big deal. But for our purposes, what we're interested in is the Apple card because there actually are some details about that.
Sandy: Basically, this is a way to encourage people to buy more Apple products. But as a rewards card, it really is not that inspiring. Mainly because the best rewards require you to live within the Apple ecosystem. In order to get 2% cash back, you must use Apple pay and Apple pay is not available everywhere.
Ryan: It means that not only do you have to use Apple Pay, but the merchant that you shop at has to accept it.
Sandy: That's right. There are lots of rewards cards that will give you 2% wherever you buy. So that's a negative. Now, you get 3% if you buy Apple products, but frankly, how much Apple stuff are you going to buy? And when you do buy Apple stuff is a lot of money. 3% of a new iPhone is not a lot of money. So that's the problem that everything else is 1%. And as I said, there are so many other rewards cards out there that will give you 2% on just about everything, and we'll put in the show notes...
Ryan: I talk to who I want 'cause I own it. It's the Citi Double Cash Card.
Sandy: Why limit yourself when you can get a much better deal on a general rewards card? They'll give you 2% on everything. They claim that their interest rates are competitive, but they're pretty much the same as anywhere else in the industry. If you run a balance, you're going to pay about the same interests that you will on any other cards. So you're not getting in a break there. A couple positive things I will mention just in fairness is that they do have low fees. No annual fee, no foreign transaction, cash advance over-limit or late payment fees. That's competitive.
Sandy: They're pretty transparent. If you do get the cash back, you get it daily, which is very unusual in the industry. I think in most cases you get them like at the end of the month or quarterly...
Ryan: Or you get it when you pay it or you have to redeem it.
Sandy: Yeah. So that's an interesting feature that would be really nice if other cards would adopt. And the final thing that is interesting about this, the actual physical card has some privacy features that you won't see anywhere else. It has very little information on it. But if you're just looking for a rewards card, there are many other options that will give you better rewards and more flexibility than this one.
Sandy: So, as I said, I mean if you wanted to get it just so you could get 3% off your next big Apple purchase ... I'm not going to argue with that, but I would not use it for my overall rewards card. It just doesn't stack up to some of the competition.
Ryan: Yeah. But it's white and it's made out of titanium.
Sandy: It's cool. I forgot that it's titanium. You're right. And you did mention the other day that the old cards do chip, but probably you're going to use this card so infrequently that it's not going to matter. I mean, I guess if you want to impress people with your credit card, but that's so typical of Apple. They're really into design.
Ryan: All right. If you say so.
Ryan: That'll do it for this episode of Your Money's Worth. For show notes and more great Kiplinger content on the topics we discussed on today's show, visit kiplinger.com/link/podcasts. You can stay connected with us on Twitter, Facebook or by emailing us at email@example.com (opens in new tab). And if you liked the show, please remember to rate, review and subscribe to Your Money's Worth wherever you get your podcasts. Thanks for listening.