Reader Mailbag: Helping Children Succeed

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. College savings or mortgage repayment?
2. Flowers for Valentine’s Day?
3. News without cable
4. Credit card with bad credit
5. LLC for hobby business?
6. Early dismissal costs?
7. Do old records have value?
8. Retirement dropping in value
9. Unsolicited investment advice
10. Struggling with family and money

Over the last several months, I’ve read a number of books on raising children to succeed in life. In particular, four of those books really stuck out: How Children Succeed by Paul Tough, NurtureShock by Po Bronson and Ashley Merryman, The Price of Privilege by Madeleine Levine, and Bringing Up Geeks by Marybeth Hicks.

I’ve come to the conclusion that the best thing I can give to my children is work ethic and creativity. If I can encourage those things in my children, they’ll be fine, because they end up producing almost every trait that causes success in the world.

How do I do that? That’s the next step in the journey.

Q1: College savings or mortgage repayment?
I have a question I hope you can help me with. My husband and I have a 30 year fixed rate mortgage with 29 years left. We own a two-family home and live in one unit and rent out the other. Currently our rental income covers the cost of our mortgage. Our interest rate is very low: 3.75%. My husband and I are in our late 30s (probably 25 years from retirement). We both work full-time and contribute to our retirement funds. We have no other debt. We have 2 young children (ages 5 and 3). Which is more important: starting a college fund for them, or paying off our mortgage?

– Dana

I’d vote for paying off your mortgage. There are a few reasons for that.

First, your children will find ways to obtain a college education regardless of whether you save. If you don’t save much for their education, they won’t be blocked from attending school. Also, there is no guarantee that they will attend college – if their life path leads them to a trade school or into an entrepreneurial opportunity, that savings will either just sit there or cause a tax penalty.

Second, the best gift you can give your children is to make them confident that you’re financially stable when you become old and they reach middle age. The burden of having to care for a parent at the same time that your children are growing is tremendous. Paying off your mortgage quickly means you can roll more into retirement savings.

We are saving for our children’s education, but we’re also in a debt-free situation. If we were not debt free right now, our focus would be on debt freedom above all else.

Q2: Flowers for Valentine’s Day?
My husband gets me a dozen roses on Valentine’s Day each year. While I really love the thought, I think it’s unnecessary for him to spend the money. He could get the same sentiment across by writing a poem or something. How do I tell him this without hurting his feelings?

– Jenny

Just flat-out tell him. I know that I really appreciate it when Sarah is direct and clear with me about anything. I don’t like it when I have to “guess” what it is that she would prefer that I do.

It’s likely that your husband will agree with you. After all, it saves both of you some money but it doesn’t close the door on a romantic moment.

You don’t have to directly suggest the poem, but just let him know that there are a lot of ways to show your love without spending money.

Q3: News without cable
I’m on board with your idea of dropping cable but the problem is that I keep the news on all the time for background noise when I’m doing other stuff. I’ll watch for a few minutes and do something else and then come back later. I did a “trial run” and tried to watch the broadcast channels but all that they showed during the day were dopey talk shows and soaps. I want something that makes me think and informs me throughout the day.

– David

Turn off the television for a day and turn on your radio. Listen to NPR or a talk radio station.

Alternately, you can go online and learn about podcasts so you can just have a string of podcasts playing all day – this is what I actually do. If you like politics and news, there are a lot of podcasts that will cover this area.

Part of why I like podcasts is that I can get a diversity of perspectives on issues. I listen to conservative and liberal voices, libertarian and socialist voices. I want to know and hear lots of angles about what is going on in the world – and I find that I don’t fully agree with any of those angles, but that I draw something useful from each of them.

If you’re not sure where to start with podcasts, I suggest using iTunes. Here’s a guide to listening to podcasts on iTunes.

Q4: Credit card with bad credit
I have bad credit but I need a credit card. What credit card can I get?

– William

If you have bad credit, I’d suggest not having a credit card for now. You need to get your finances straight first.

Do you have any past-due debts and bills? If you do, you shouldn’t be using a credit card. Do you have an emergency fund? If you don’t, you shouldn’t be using a credit card.

A credit card can be a useful tool, but for someone with poor credit, holding a credit card is basically asking for further financial disaster.

Q5: LLC for hobby business?
On the weekends, I make Adirondack chairs in my wood shop. I can usually make one on a weekend, and then I can sell it for about $100 profit. Since I try to produce a chair most weekends, I earned about $3,500 in profit last year. I have been reporting this income as regular income on my taxes, but I have been wondering if it makes sense to form a LLC for tax purposes.

– Daniel

Forming an LLC isn’t going to help with tax purposes in your situation. The big benefit of an LLC is that it protects you from potential damages. For example, if someone were to sue you because of a defect in a chair you make, an LLC would protect you (to a large extent) from having your personal assets taken in a lawsuit.

Now, should you take that step? It’s really up to you. In most areas, it’s not terribly expensive to do it, but going through all of the paperwork and making sure that there is a very clear division between personal assets and business assets can be time consuming.

If you plan on ever expanding the business significantly or you feel worried in any significant way about getting sued, having a LLC already in place is probably a good idea.

Q6: Early dismissal costs?
On early dismissal days, I have to send my kids to child care for a few hours before I get home from work. On normal days, I’m home for half an hour before they get off the bus. I would like to find a way to eliminate or reduce that child care cost. Do you have any ideas?

– Sally

The first thing I’d look at is other families in your area. Do you have a good relationship with any other families that have children that get off the bus? If so, see what they do on those days.

If you can find someone who can watch your children for an hour or two on early dismissal days, perhaps you can “trade” that time by giving them a date night every couple of times that they watch your children. In terms of time, I’d probably consider it appropriate that you would watch their children for a bit more time than they’re watching yours, since being there for the children is much more of a need than a date night is, but that’s just my own take.

If that doesn’t quite work, perhaps you can find several families who are in the same boat as you and do a “co-op” where you take turns watching all of the children in the group on early dismissal days. If you have five families involved, you could just request the afternoon off on every fifth early dismissal day.

Q7: Do old records have value?
After my husband passed away, I’ve been going through his old things and sorting them. I have been successful in sorting and getting them out of the house, but I don’t know what to do with the old record albums from the 60’s and 70’s. Some of them are of famous bands like the Beatles, Led Zeppelin, the Doors, the Rolling Stones, Janis Joplin. I don’t know if there is a market for them. Do you know of any? I think it would be a pity to throw them away.

– Sandra

Here’s the thing – most records that aren’t rare in some way bring only pennies from dealers as the recordings exist in many copies and in many formats. There isn’t an easy way to tell if you have a diamond in the rough without researching each one.

Your best tool for figuring out if you have something rare is to search online. Type in the artist name, the album name, and follow that with “vinyl value” into Google. So, if you were trying to find out the value of The Doors’ L.A. Woman, you’d just type in “The Doors L.A. Woman vinyl value” and see what you get.

Most of the time, you’ll find results at, which is a rare records exchange. If you’re sure that the record you have is one of the rare ones, you can follow up on selling it. Unfortunately, the odds are against that for what you likely have.

Q8: Retirement dropping in value
Over the last week my Roth IRA has lost 10% of its value. Is there anything I should be doing here?

– Beth

Since I don’t know how close you are to retirement, I don’t know for sure. However, if you’re not close to retirement at all, you should have a heavy balance of your Roth IRA towards stock and other relatively high-risk-high-reward investments. This is the “high risk” part of that equation.

The important thing to remember is that you shouldn’t panic when the stock market burps. Don’t even look at it and remember that the stock market has fallen many, many times. If you have a long time before retirement (many years), you have plenty of time for your account to go back up.

If you’re close to retirement and you’re losing that much in your Roth IRA, you’ve probably got too much exposure to the stock market. From here on out, I would switch your contributions (not what you have in there, but your contributions) to something safer to balance it out, like bonds or cash.

Q9: Unsolicited investment advice
My husband and I both collect Social Security and we both collect pensions from the state. A few weeks ago we were invited to an investment dinner for retired folks. They served a nice dinner and then presented on the dangers of relying on Social Security and a pension and encouraged us to buy an annuity. Is there anything to what they were saying?

– Donna

It never hurts to diversify your holdings. If you can, there’s no reason to take a little bit of your income and save it for the future, whether it’s just putting it in a savings account or investing in other things. It’s worthwhile to spend less than you earn and put the difference away.

Having said that, I would never, ever invest with a group that gave me a presentation after a dinner without doing a lot of research first. That’s pure salesmanship, and when someone is trying to sell you an investment, my gut says to be incredibly wary.

They’re selling you an annuity, which is an investment that will only benefit you if you live a very long life and if that company stays in business for that long. I am not a big believer in annuities.

My thoughts? Just think of it as a free dinner, then maybe consider trying to save, say, 10% of your monthly income for a rainy day. If you’re already doing that, then I wouldn’t sweat it.

Q10: Struggling with family and money
My sister recently asked me for a $1,000 loan. Her credit is maxed out, she was denied a bank loan, and she is having a hard time putting food on the table for her and her son. I asked her to show me a list of her income vs. expenses before agreeing to the loan and she agreed.

It turns out, her monthly expenses (mostly fixed liabilities) are significantly higher than her monthly income. I suggested several ideas she could consider to reduce her expenses (e.g., get a roommate; trade-in vehicle for a less expensive car; work side jobs; get rid of smartphone; refinancing; etc.), but she refuses to accept that her income is insufficient and that these steps are necessary. Her plan is to work overtime and see how things go — unfortunately, the math still shows a major deficit.

I’m prepared for the loan I gave her to be a gift and any further money won’t help her in the long run. No matter how I explain the monthly deficit, she doesn’t seem to see it. Do you have any advice?
– Daniel

For starters, I wouldn’t loan her any more money unless you know it’s a gift, but you already understand that.

Unfortunately, personal finance is one of those “you can lead a horse to water, but you can’t make him drink” situation. If the person you’re giving advice to is unwilling to hear it, you’re wasting your breath. Eventually, she’ll reach a financial breaking point and that’s when you’ll be able to help.

My general feeling is that until someone reaches that point, putting pressure on them to change actually has a negative effect, as the person often resents the advice and pushes against it.

Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. Iíll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.

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