Archives for April 30, 2019

Signing kids up for extracurricular activities could bring them extra income someday. Or at least, eight in 10 parents in a new survey are hoping — especially considering that two-thirds of them have gone into debt to pay for those soccer, ballet, painting and piano lessons.

CompareCards.com surveyed more than 700 parents with young children who participate in sports, hobbies and other passion projects outside of class. And the more that these moms and dads spent, the more they thought that it would pay off in the long run: 90% of parents who dropped at least $4,000 a year believe their kid will earn money from that activity, compared to 75% of parents who spend less than $1,000 who said the same.

“And what the survey showed is, it’s not just sports parents who have these big dreams and big hopes for their sons and daughters; it’s music parents, it’s cheerleading parents, it’s debate team parents,” Matt Schulz, chief industry analyst at CompareCards, told MarketWatch. Indeed, sports were the most popular activities (reported by 30% of parents), but folks are also footing the bill for music (16%), dance (15%), gymnastics (12%), cheerleading (9%), martial arts (8%), beauty pageants (3%) and debate teams (3%), with about half (46%) spending more than $1,000 annually, and a quarter (27%) coughing up more than $2,000.

This supports a recent University of Michigan poll that found 55% of parents said school-sponsored sports teams and extracurricular activities helped boost their child’s college application. (Granted, that was skewed toward wealthier parents, as three times as many low-income parents as high-income ones said that the benefits of these activities were not worth the cost.)

Many parents are overextending themselves to give their kids these opportunities. Sixty-two percent of those in the CompareCards.com survey revealed they have been in debt for their kids’ activities, and one in three are still paying off a related debt. What’s more, almost one in 10 (9%) of those in debt owe more than $5,000, and 27% owe more than $3,000. “They do hope that perhaps those efforts in terms of time and money may be rewarded with maybe a scholarship, or maybe a professional career,” said Schulz.

In fact, families could wind up spending more than $200,000 in total on private school tuition, SAT tutors, living in a good school district, as well as sports and music lessons to groom their kids for getting into a good college. Athletics alone can run between $100 or $499 a month, according to TD Ameritrade. And sports play such a big part because recruited athletes have been shown receive the largest admissions advantages independent of academic merit — which is why many of the dozens of high-profile parents arrested in the “Operation Varsity Blues” college admissions scandal gamed the system by bribing their kids’ ways into elite universities through sports teams.

But music lessons can also run $40 to $60 per hour (or more than $3,120 a year); language lessons $30 to $45 per hour (or $2,340 a year); and art lessons $30 to $60 per hour (or $3,120 a year), according to Thumbtack.

San Francisco Bay Area mom Vered DeLeeuw figures that she and her husband have spent about $20,000 on extracurricular activities while their daughters (now 17 and 19) were growing up. The sports, clubs and lessons that have run them about $1,000 or $2,000 a year have included dance, gymnastics and swimming, as well as Hebrew lessons.

“We live in an extremely competitive world, and it’s also a world where many parents feel that their kids are their most important investment and their proudest achievement,” DeLeeuw, who runs the Healthy Recipes blog, told MarketWatch. “I will do a lot to increase their chances of success. And extracurricular activities are part of that — of enriching them, giving them more tools, helping them develop into the best people they can possibly be. Developing skills and talents outside of school is important. And in the case of the Hebrew School, for example, it’s also a way to preserve tradition, language and cultural identity.”

But she admits that while she and her husband have been fortunate enough to be able to meet these financial demands, she recognizes that by spending around $20,000 on their kids’ extracurricular activities, “that’s money that did not end up in our nest egg. So in this respect, it was a sacrifice.”

Veronica Hanson enrolled her daughters, ages 5 and 7, into activities when they were each just a few months old. It started with swimming and music classes, and now the girls are already fluent in Japanese thanks to their full-time language immersion lessons. They’ve also been involved in the Girl Scouts, acting, soccer, rock climbing, art, hiking , yoga, cooking, ballet and gymnastics. And the family takes trips every year, including a recent European excursion, to further broaden their growing perspectives.

“I have two daughters who are part of our world’s future. My husband and I invest everything we can into making sure our kids are global citizens who can contribute to progress,” Hanson, 33, from Lake Oswego, Ore., told MarketWatch. “I think it’s important to let them explore a bunch of different things when they’re young.”

She and her husband rely on a few revenue streams at different parts in the year to cover these costs, including a vacation rental property that pulls in a lot of money during the summer, and running a network marketing business, as well as her entrepreneurial site Vacay Visionary. “It is a huge investment,” she admitted. For instance, the girls are doing 10 different weeklong summer camps this summer (including outdoor skills and computer coding) that cost around $350 a week per kid. “That’s $700 a week just in care and activities for your children,” she said — running up to $7,000 for the summer. But she noted it’s better to have them explore something for a week at a time, to see if they actually like it, instead of signing up for, say, a summerlong arts class that they get bored with after a couple of weeks.

And Portland, Mich., mom Shelly Schneider drops $3,000 a year, or a grand apiece, on her three children: a son, 7; daughter, 10; and son, 12. The two oldest are in a theater group, and her daughter sees a vocal coach and is in the Girl Scouts. The kids have also played tee ball, soccer and football, and all three are taking piano lessons.

“This is low,” Schneider, 39, told MarketWatch, as the extracurricular tab would run even higher if they joined traveling sports teams instead of the local city leagues, for example. City league fees run $30 to $120 a season (not counting the uniforms) compared to the upward of $1,000 in the traveling leagues (which also require traveling to away games almost every weekend). Plus, she and her husband work from home (she runs CBD supplements site 113 Solution, and he’s in insurance) so they don’t have to pay for child care, and they’ve paid off their debt, so there’s wiggle room in their budget to invest in all of these hobbies.

“Through all of these things, [the kids] are proving themselves and building confidence, building relationships and growing their little brains, and that’s very important,” said Schneider, noting that all three children are straight-A students, and community theater has helped the two oldest with their public speaking. “I believe the arts are a very important part of learning and opening up the brain to help you with other subjects. Learning music is proven to help with math and science. And if they learn to love science and math, that can really expand their careers.”

These parents were able to make it work, but as the new survey showed, many others are getting thousands of dollars in debt. “It’s noble to support your kid in the pursuit of their dreams, but it’s also important for a parent not to do that in a way that can wreck their own dreams of being financially stable and retiring someday,” said Schulz.

His five tips include:

• Consider lower-cost alternatives: “There are a lot of options in terms of lessons, whether it’s sports, music, cooking or whatever other passion you might have, that you can find (free) on YouTube,” he said. Make do with those until you can save up enough for lessons. Or make like Schneider and see what affordable sports leagues or clubs are being offered by your local park or library.
• Save for the expense. If your kid will need several hundred or several thousand dollars for that special league, camp or competition, make saving for that a priority in your budget. Putting away a few extra dollars a week adds up.
• Have hour kids pitch in: This will also reveal how passionate your child actually is about the activity. “If your kid is old enough to mow a lawn or walk dogs, or they could pull in a little bit of money to put toward that instrument or that expensive selective soccer league — if they are willing to do that, it could be a pretty good indicator that they are super into it and they want to keep doing it,” he said.
• Use credit card sign-up bonuses strategically: Maybe instead of taking $1,000 out of your savings for that cheerleading camp, pay for it with a new credit card, and use those savings to pay down the credit card bill, Schulz suggested. Many cash-back cards will give you a $100 or $150 cash back bonus after you spend $500 or more during the first three months with the card. “That money back can be really useful, and help extend your budget a little further,” he said. Just be sure to use the new card wisely, and only charge what you can pay off in full once you get paid.
• Remember: You can put yourself first: “It can be hard for parents to think of themselves and their own needs when it comes to their kids’ passions and dreams,” said Schulz. “But if you don’t do that, then you can end up doing yourself, your kids and your family a disservice by making things harder for yourself financially down the line.”

Half of American parents are risking their retirement savings to help support adult children, according to a recent survey.

A poll conducted by Bankrate.com asked parents: Would you say you have sacrificed or are sacrificing your retirement savings to help your adult children financially?

Fifty-one percent of respondents said, yes, they were jeopardizing their retirement security a lot or somewhat. Parents said they were paying, among other expenses, cellphone bills, car insurance premiums and housing costs.

Higher-earning parents were more likely to provide financial assistance compared with lower-earning parents. Sixty-one percent of parents making more than $80,000 per year said they were sacrificing their retirement to help support children 18 and older with their bills, while 54 percent of parents earning $40,000 to $80,000 said they are paying bills for their grown children.

“I think some parents are caught between the proverbial rock and a hard place when it comes to sending their children on their way, financially speaking,” said Mark Hamrick, senior economic analyst for Bankrate.com. “For some, it is because they see no other good alternatives, or they are unwilling to press the point, such as essentially kicking their children out or being more forceful in, say, divorcing them from the Netflix account.”

Pulling back financial support can be difficult when your adult child is starting out and struggling under the weight of student loans and high housing costs. But coddling them too long at the expense of your retirement security will eventually shift the financial burden to your children, who may not be able to handle the burden of your care.

“In some cases, for the parents, they are likely either failing to do their own homework to know how much money they will require in retirement, in denial, or overly optimistic how they will make up for it on the other side, perhaps by working part-time later,” Hamrick said.

I’m not opposed to extending parental resources to help them pay off debt or ease the financial burden on adult children who are trying to establish themselves.

“I don’t think it is exclusively a financial issue,” Hamrick said. “I think there are a variety of threads attached to the emotionally charged nature of their relationships. Because of the modern nature of more closely tied psychologically boomer parents and their adult children, some are willing to pay a price to keep them close to home.”

I’ve seen this first hand. Parents cannot let go financially for fear their children will struggle too much. Or they cling too long, enabling irresponsible adult children. The financial umbilical cord has to be cut or you are going to end up with an overindulged adult still treating you like his or her personal ATM.

The question of sacrificing your retirement savings to help support an adult child reminds me of the instructions the flight attendants give just before takeoff.

Flight attendants instruct passengers to put on their oxygen masks first, even if traveling with a child — or someone acting like a child. As parents, we have to think of our financial life as an oxygen mask.

Why?

You have to fasten your mask first, because if you’re gasping for air and pass out, you cannot help yourself or your child.

If you have enough saved for retirement and to assist an adult child who is doing his or her best to launch, that’s fine. But if you aren’t saving for retirement or investing enough, put your mask on first.

Secure your retirement first.

More and more children under the age of 14 have their own credit card Opens a New Window. to use at their leisure, according to a new report.

Since 2012, credit card-carrying-teens have increased more than four times to 17 percent among 8-to-14-year-olds, up from just 4 percent seven years ago, according to data from investment management firm T. Rowe Price.

Moreover, 21 percent of the 1,500 parents polled in a recent survey Opens a New Window. by Creditcard.com found that some kids without their own card are still using their parents without their permission.

Of those polled, six million American parents say they have knowingly given a credit card to their child.

Ted Rossman, an analyst for CreditCard.com told FOX Business that he thinks the increase is positive with the exception of those teens using it deceptively.

“I think this increase is a good thing for two main reasons: building credit and teaching kids about money,” Rossman said.

According to FICO data, more than 53 million people in the U.S. do not have enough data in their credit files to generate a FICO score.

“This is a big problem for young adults, in particular. It’s an unintended consequence of the CARD Act, which made it difficult to get a credit card before age 21, and in many cases even beyond that,” he added.

So, parents who add their children to their credit cards as “authorized users” could actually be doing themselves –and their children—a big favor by getting their credit history established early.

Rossman said the ideal age for this is around 15 or 16 in professional opinion.

“If the parent has a solid track record of paying that card on time and keeping his/her debts low, the positive benefits will flow to the child once he/she is added as an authorized user. Of course, negative information transfers as well, so only do this if you have good payment habits.”

However, if you are a parent that is concerned that your child will overspend, the next step would be to set a limit on the card or get a prepaid debit card to start.

The main benefit, he added, is to make this into a “teaching tool” to set their children for a good financial future.

As the cost of higher education continues to rise and student debt Opens a New Window. loads pile up, there is one mistake many families make when it comes to lowering college Opens a New Window. expenses.

Each year the Department of Education awards about $120 billion in grants, loans and other funds to help millions of students afford education costs. It is the largest provider of student financial aid in the country.

But, even though people appear to be familiar with the Free Application for Federal Student Aid (FAFSA), many still fail to apply.

Trey Peterson of Haven Financial Group told FOX Business that the reasons people don’t apply include the fact that they find it difficult to fill out the application, and/or assume that they won’t qualify for aid.

If you apply, “there is a good chance you will qualify,” Peterson said, adding that failure to do so could cause families to miss out on thousands of dollars.

In fact, a 2016 NerdWallet study found that high school graduates forewent $2.7 billion in free federal grant money, including 747,579 people who were likely eligible for a Pell grant. The average amount of money that students who did not apply were found to have missed out on was $1,861.

A 2018 survey found that 65 percent of students or parents said they applied for aid. Of those who didn’t, 33 percent thought they didn’t need it and 32 percent though they would not qualify.

Federal grants do not need to be repaid, which will limit a student’s debt burdens after graduation. And federal loans tend to have low interest rates.

Each college may have its own FAFSA deadline – and each state has its own deadline. But Peterson encourages people to apply as soon as possible, because funds can be available on a first-come, first-served basis.

“Some colleges and states do run out of money,” he noted.

When it comes to other mistakes people make when applying for aid, Peterson said oftentimes applicants fail to read the instructions carefully. If something is incorrect on an application, it will slow down the process – putting you at a greater risk of missing out on funds.

And finally, one last thing to make sure of when filling out FAFSA forms is that you sign the bottom, something Peterson has seen a number of applicants forget to do.

According to data from FAFSA, for the 2017-2018 application cycle it received nearly 19 million applications, which included 9.1 million from students who were pursuing their first Bachelor’s Degree.

Outstanding student loan debt surpassed $1.5 trillion in 2018 – second only to mortgage debt – doubling over the past decade.