Allowances have become big business. Paul Richard, executive director of the Institute of Consumer Financial Education, estimates that American children under the age of 18 are directly responsible for purchases that total $10 billion to $12 billion each year. Kids also indirectly influence approximately $7 billion to $8 billion of their parents' annual purchases -- items such as computers, cell phones, Internet service, and satellite television.
And it's not strictly an American phenomenon: Elissa Moses, author of The $100 Billion Allowance: Accessing the Global Teen Market (John Wiley & Sons, 2000), writes that global teens between the ages of 15 and 19 are receiving and spending more than $100 billion each year. The biggest spenders are teens in Norway, Sweden, and Brazil (about $50, $42, and $41, respectively, each week). "Huge amounts of money are going out to teens to launch them as adults," says Moses, "and parents aren't necessarily keeping track of it as a budget item. It's an invisible leak."
So how much should be going out? Richard and his organization advocate giving children 25 cents per year of age. (So a 5-year-old would receive an allowance of $1.25 each week.) Such financial modesty might not grease the wheels of commerce, but it might turn kids into less-squeaky wheels.
- Alison Overholt
It's the oldest cliché in the book -- and it's wrong. Talk to any financial adviser with an ounce of integrity, and she will repeat the same advice: Stop trying to time the market, and instead pay attention to allocations. What percentage of your assets is in equities, bonds, and elsewhere? How are your assets allocated within each category -- and how do those allocations map your long-term needs? "Even if you could time the market well, it only accounts for a tiny fraction of a portfolio's performance," insists Sung Won Sohn, executive VP and chief economic officer for Wells Fargo Bank.
That's a tough message in our get-rich-quick culture. So Sohn points to data. Imagine three investors, he says, each of whom bought shares in the same portfolio of stocks over a 25-year period. Each one invested $1 million: $10,000 per quarter for 100 quarters. They all bought the same stocks but with one big difference. The "genius" bought his shares at the lowest price every quarter. The "idiot" bought his shares at the highest price. And the "mechanic" simply bought his shares on the last day of every quarter.
The end result? The genius had annual returns of 10.2%; the idiot, 9.9%; the mechanic, 10%. So whether you're a genius, an idiot, or something in between, Sohn's data should convince you that timing the market -- buying low and selling high -- is a fool's errand.
- Ryan Underwood
Karyn Bosak used her seven credit cards only on what she considered to be the essentials: a $1,500 sofa, a $500 chandelier, and lots of latte. Then Bosak lost her job and was facing bills totaling more than $20,000. So the 29-year-old Brooklynite set up a Web site and asked for help. ("I wasn't out saving the world. I was at Bloomingdales.") So far, www.savekaryn.com has raised more than $13,000 from concerned cyberstrangers.
But credit-card abusers aren't usually that lucky. Most fit the typical profile of the 1.1 million people seen each year by the National Foundation for Credit Counseling (NFCC): They're in their mid-thirties, they carry about $27,000 in debt, and they are beholden to nine creditors. CardWeb.com estimates that about 20% of U.S. credit cards are "maxed out."
"Debt was once a social shame," says Robert D. Manning, author of Credit Card Nation (Basic Books, 2000). "These days, young people get credit cards before they have their first job."
But now, says NFCC spokeswoman Lydia Sermons-Ward, an even more ominous problem has appeared on the horizon: overextended mortgage refinancings. For people who are hooked on credit, putting it on their house is even more alluring than putting it on their card.
- Ryan Underwood
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