Give a gift of financial knowledge to a child or grandchild.

Strategy: Give a gift of financial knowledge.

Best for: Gift-givers at all income levels.

Overview: 

Even if you're not in a position to make a financial gift to a child or grandchild, you can still take time to impart financial wisdom.

Even for very young children, it's not too early to start discussing big-picture concepts such as the benefits of delaying gratification today for a greater payoff down the line. 

And if a child is slightly older, you can share some specifics of your own approach to investing; it's amazing how many great investors say they got their starts by reading the stock tables with their grandparents. 

You might also share a good basic book about investing: The Wall Street Journal Guide to Starting Your Financial Life is a fine entry-level book for new investors; The Bogleheads' Guide to Investing is another great basic tome for entry-level investors.

http://news.morningstar.com/articlenet/article.aspx?id=449121

The Best Ways to Give a Financial Gift to Children

Help the kids establish a solid financial foundation with these four strategies.

Question: I'm not rich, but I'd like to set my grandchildren on the right path to saving, investing, and understanding their money. Do you have any tips for giving financial gifts this holiday season?

About the Author

Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz and on Facebook.

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Answer: Wealthy individuals often go to great lengths to pass assets to their heirs, setting up trusts and using other elaborate mechanisms to ensure an efficient transfer of assets. But don't think you need to be a Rockefeller to have a meaningful impact on the financial futures of your children and grandchildren. You can fund various types of financial accounts with as little as $25 to start.

Here are some of the key strategies to consider when giving children and grandchildren a financial boost. There's no one-size-fits-all answer: The right choice for your situation will depend on how much you intend to give as well as your grandchild's life stage and the goal of financial assistance.

Strategy: Set up a UGMA/UTMA account.

Best for: General savings and investing, particularly for relatively small dollar amounts.

Overview: UGMA/UTMA accounts provide a way to save on behalf of a minor child without setting up trust funds or hiring attorneys. As a donor, you'd appoint yourself or other adults (such as the child's parents) to look after the account. One of the key advantages with UGMA/UTMA accounts is flexibility: You can put a huge range of investment options inside a UGMA/UTMA wrapper, including stocks and mutual funds.

If you're saving fairly small sums, these accounts can be a decent way to go, but there are two major hitches. The first is that the assets become the child's property when he or she reaches the age of the majority--18 or 21, depending on state of residence--leaving the donor with no real control over where the money is spent. The second is that for college-bound children, substantial UGMA/UTMA assets will tend to work against them in financial-aid calculations. (This Investing Classroom unit discusses UGMA/UTMA accounts.)

If you're setting up a UGMA/UTMA account, my advice is to keep it simple and choose a plain-vanilla, well-diversified fund. Total market stock market index funds can make sturdy anchor holdings for UGMA/UTMA accounts.

Strategy: Contribute to a 529 Plan

Best for: Building college savings while possibly obtaining a tax break at the same time.

Overview: If you're saving for a college-bound child or grandchild, section 529 college-savings plans help you avoid the two key pitfalls of UGMA/UTMA accounts. First, the assets are the property of the account owner (in this case, you), not the child. So if your grandchild doesn't end up going to college, you can use the 529 assets for another grandchild. Second, because 529 plan assets are considered to be the property of the account owner, they have a relatively limited impact on financial-aid eligibility. In addition, you won't owe taxes on 529 plan investment earnings from year to year, and withdrawals from a 529 plan account will be tax-free provided you use them to pay for qualified higher-education expenses such as tuition and room and board. Finally, you may be eligible for a state tax break on your contribution; this article discusses the value of those tax advantages on a state-by-state basis.

Even though 529s have generally improved over the years, their quality is still uneven and some plans are costly. Morningstar's 529 Plan Center helps you assess the pros and cons of your state's plan; the 529 plans from Maryland, Ohio, and Nevada are among our favorites.

Strategy: Fund a Roth IRA

Best for: Saving for the long haul, especially for older children.

Overview: If your grandchild is older and working, you can contribute an amount equal to his or her earned income, up to $5,000, to a Roth IRA. As with a UGMA/UTMA account, you can put a huge range of investments inside a Roth wrapper; there are no investment minimums or age limits on contributions. The money inside the Roth can grow tax-free until retirement, and the vehicle also offers some flexibility for withdrawals before that time. Specifically, contributions to a Roth IRA can be withdrawn at any time and for any reason, to pay for college or anything else. (Those who need to tap the investment-earnings piece of an IRA will owe income tax on that portion of the withdrawal, but they'll circumvent the 10% penalty on early withdrawals if they use the money for qualified college or certain other expenses.)

Despite the big tax benefits, Roth IRAs for children carry one of the key drawbacks that also accompany UGMA/UTMA accounts: The child maintains control over the assets and can use the money for whatever he or she wants at the age of majority (18 or 21, depending on the state.)

Strategy: Give a gift of financial knowledge.

Best for: Gift-givers at all income levels.

Overview: Even if you're not in a position to make a financial gift to a child or grandchild, you can still take time to impart financial wisdom. Even for very young children, it's not too early to start discussing big-picture concepts such as the benefits of delaying gratification today for a greater payoff down the line. And if a child is slightly older, you can share some specifics of your own approach to investing; it's amazing how many great investors say they got their starts by reading the stock tables with their grandparents. You might also share a good basic book about investing: The Wall Street Journal Guide to Starting Your Financial Life is a fine entry-level book for new investors; The Bogleheads' Guide to Investing is another great basic tome for entry-level investors.

http://news.morningstar.com/articlenet/article.aspx?id=449121

44% of people plan to never invest again

JUNE 6, 2011 · 

A recent survey shows that 44% of people plan to never invest money in the stock market again.

“Prudential, which polled more than 1,000 investors between the ages of 35 and 70 online earlier this year, found that 58% of those surveyed have lost faith in the stock market. Even more alarming, 44% said they plan to never invest in stocks. Ever.”

Think about that for a minute.

That decision is not the well-reasoned response of someone who has carefully evaluated the risk and reward ratio of investing.

It is an emotional response born out of fear (“I don’t want to lose my money!!!”) and ignorance (“this stock market is a crock!”).

Here are a few notes to consider:

• Perhaps the worst financial move you could make would be to withdraw from the stock market. These are some of the same people who will complain about money their entire lives, never stopping to realize that their own behavior — decades prior — caused their financial situation
• If you’re truly risk-averse, you have other options to mitigate risk, such as investing in lower-risk investments or changing your contribution rates. However, this assumes you are rational and will “understand” the options. The truth, of course, is that discontinuing investments is anything but rational.
• I don’t only blame these people, by the way. Although we are responsible for our own actions, the financial education in this country has failed us.
• Ironically, as the Wall Street Journal notes, “It looks as though many of the retail investors now getting back into stocks are the same people who bailed from the market just before the start of a historic bull run.” What’s the takeaway? You will never be able to time the market accurately over the long term. This is where some crackpot commenter will say, “DUH RAMIT, I SAW THE HOUSING CRASH COMING A MILE AWAY AND PUT ALL MY MONEY IN RED BRICKS!! NOW IT’S SAFE!! HA HA AHAAHAHA.” You may get lucky with timing once. But eventually, you will lose
• If you’re in your 20′s and 30′s, your time horizon allows you to withstand temporary downturns and still come out ahead by retirement age
• The idea that “I don’t want to lose my money” ignores the fact that by not investing, you will also lose money — it will just be an invisible loss that will only be realized decades later
• Older people who lost everything in the stock market should never have been in that position — their asset allocation failed them
• The investment strategy for the vast majority of individual investors should be passive, buy-and-hold investing. There’s no need to obsessively monitor investments or day-trade. I check my investments every 6-12 months as I have better things to do than micro-monitor these numbers.
• Target-date funds make sure your asset allocation is always age-appropriate with little/no effort from you. It is one of the finest automation strategies in life.

If you’re curious how to set up an automatic investing plan — including which investing accounts I use and how I chose my asset allocation — pick up a copy of my book. Here’s the print version and Kindle version.

Results from the book:

“Thanks for the advice. Have been able to build 25k in a roth, 7k in a 401k, automate all my finances and live a bliss life thanks to your book.”
–Adrian S.

“Since I bought your book, I’ve cleared five thousand in credit card debt and twenty thousand in student loans. I’m maxing out my roth and my 401k, have a savings plan and negotiated my way into six figures.”
–Nicholas C.

“After buying your book, my personal finances have changed completely…all of my credit cards (which I pay off in full each month) are completely automated. I also rolled both 401ks into a Vanguard IRA.  Yesterday, I was able to put enough money into the IRA to max it out for the year 2010…something I didn’t think I’d be able to do for a few years.  I’m setting up an autopayment plan to put my 2011 IRA payments on cruise control.”
–Steve K.

http://www.iwillteachyoutoberich.com/blog/44-of-people-plan-to-never-invest-again/

Do yourself a favour, invest in your financial education before you invest in the markets

"Risk comes from not knowing what you are doing." 

Risk can be alleviated with proper education and experience.  This is the same process that you must commit to undertake when you decide to invest in any market.  First and foremost, you must get yourself educated.

It is strange that most parents would not think twice to pay high school fees to send their kids to university, when there is no real guarantee that they will succeed in life after getting their degree.  However, when it comes to paying for financial education, where there is a chance they can lose all of the kids' education funds, many people shy away because of the price.  Instead, they would rather risk their hard earned money in a market or instrument that they have little knowledge of, or worse, investing based on rumours or tips from various unverified sources.

Most people are attracted by the myth of quick, easy money from investing (or trading) but fail to understand that it takes a lot of hard work to be successful.  Everyone equates being a doctor or lawyer to earning lots of money.  But it is also common understanding that to be a doctor or a lawyer requires one to put in many years of education and practice before one can be successful.  Ask anyone about his or her current job and you would most likely get the same response that hard work is the norm.  How then can it be different for investing (and trading)?

"Risk comes from not knowing what you are doing" - a famous quote from Warren Buffett.  
It sounds simplistic, but it epitomises the real meaning of the work "Risk".

Any instrument, be it stocks or forex will be dangerous if you don't know what you are doing.  it is not the instrument but the level of the investor's understanding of the instrument and the market that determines his risk level.  So, do yourself a favour, invest in your financial education before you invest in the markets. 

Here is another quote from Mr. Buffett:  "The most important investment you can make is in yourself.."

Financial literacy vital to invest in complex environment

Wednesday March 30, 2011

KUALA LUMPUR: Financial literacy is important to enable people to protect themselves in an environment that offers increasingly complex and sophisticated investment products.

Securities Industry Development Corp (SIDC) chief executive officer John Zinkin said some people needed to be guided on how to manage their money for savings and investments.

“They need to understand not just income and expenditure but also save, budget and invest. They have to understand the whole concept,” he told a media briefing yesterday.

Zinkin said different stages of life required different financial needs and SIDC’s financial literacy programme, Bijak Mengurus Wang (BMW), would cater to differ levels of learning.

He said the programme, aimed at creating knowledge and vigilant investors, had benefited 21,133 participants.

The programme teaches participants about smart money management, wise investing and how to spot scams.

To gauge the programme’s effectiveness, SIDC has recently engaged a third party to conduct an impact survey among 800 random participants.

The survey shows that 87.3% of the participants are now more vigilant when considering an investment, 85.8% have started implementing personal budget and 84.4% have started setting financial goals.

Zinkin said 88% of the participants had also set aside some money as force saving before spending their income every month.

More than half of the respondents have opted for automatic salary deduction facility to practice “pay yourself first”. Additionally, 46% of the participants had become investors for the first time after attending the programme.

This year, SIDC hopes to educate 5,500 people. The programme, which is free for all, is part and parcel of the overall effort by the Securities Commission (SC) to promote investor education.

For more information, visit www.sidc.com.my or www.min.com.my.

http://biz.thestar.com.my/news/story.asp?file=/2011/3/30/business/8375425&sec=business

Savers' Impatience Hinders Retirement Goals

Too many savers choose immediate gratification instead of taking advantage of larger long-term payoffs.

Few would argue that we have a retirement crisis in America. What people might debate is how we solve the problem.

Slowly but surely, however, researchers are producing work that offers much-needed insight into how we can reduce the severity of the problem. Case in point: A working paper just published by the National Bureau of Economic Research, on two explanations for why consumers have trouble with financial decisions.

"One is that people are financially illiterate since they lack understanding of simple economic concepts and cannot carry out computations, such as computing compound interest, which could cause them to make suboptimal financial decisions," wrote Olivia Mitchell, the director of the Pension Research Council, and Justine Hastings, an economics professor at Yale University, in their paper, "How Financial Literacy and Impatience Shape Retirement Wealth and Investment Behaviors."

"A second is that impatience or present-bias might explain suboptimal financial decisions. That is, some people persistently choose immediate gratification instead of taking advantage of larger long-term payoffs."

In other words, people generally don't much know, if anything, about money. And two, consumers — even when they are financially literate — sometimes can't help themselves from making bad decisions. It's the way we are wired. The lizard part of our brain overrules the more rational part when it comes to things financial. The lizard part of the brain says that the joy of spending (or not saving) today is greater than the pleasure of having a nest egg later on.

"Impatience or present bias seems to be an inability to plan for long-term consequences," said Stephen P. Utkus, a principal with the Vanguard Center for Retirement Research. "It may be a learned trait from family and peers, or it may be inherited. There is some evidence from neuroeconomics that impatience may be related to certain brain structures.

Read more here.

Help Teach These Kids How to Fish

By Chuck Saletta | More Articles 

December 31, 2010 | Comments (0)

There's an old saying: If you give a man a fish, you'll feed him for a day, but if you teach that man to fish, you'll feed him for a lifetime. When it comes to extending that parable to handling money, truer words have never been spoken.

Money, if not handled well, can be very fleeting. Multimillionaire athletes, celebrities, and lottery winners have all wound up broke. On the flip side, there are stories of people like Grace Groner, who managed to turn a modest income into amazing wealth through prudent long-term money management.

Good habits start earlyThere's an enormous difference between income and wealth, and it's surprisingly easy to have a very large income, but not be able to save or invest a bit of it. Without an investing mentality, income alone will never turn into wealth. On the other hand, as Grace Groner's story showed, you don't need to earn a fortune to wind up with one, if you manage what you've got well.

That's an amazingly powerful message that, if it can be driven home to at-risk youth, can help them escape the cycle of abject poverty that may have plagued their families for generations. And it's a message that needs to get through to people early, for two critical reasons:

• The earlier that people understand how to manage money, the longer time they have for their little bit of cash to compound in their favor.
• It's far too easy to get trapped into financial pain in things like payday loan traps from short=term decisions made without a full understanding of the long-term consequences.

With that reality in mind, The Motley Fool has chosen Thurgood Marshall Academy as this year's Foolanthropy recipient. The academy is a Washington, D.C., charter school whose students are drawn from an area with an average per-capita income around $14,000 per year, just about one-third of the national average. For people in that situation, every penny counts, and there's not much keeping them from getting trapped in a state of perpetual indebtedness.

With Foolish financial training to go along with Thurgood Marshall's mission to provide a first-class education, these students can break free from the bonds of generational poverty. In essence, the Fool and Thurgood Marshall Academy are teaming up to teach these students how to financially fish -- so that they may eat for a lifetime.

Break the bonds that tieOne of the most powerful Foolish lessons for these students explains credit card debt, and how a $20 pizza can wind up costing $100, if financed over time on a credit card. But what happens if you take that lesson to the next level, and show what can happen to that $20 if it gets invested, rather than spent on pizza in the first place?

With a long-term perspective, the same compounding that would cause a $20 pizza to really cost $100 can turn that $20 into something far more useful -- if it's invested well. And while you may think that $20 may be too little to invest, there is one type of investment that often accepts even small-scale contributions at or around that level. They're called Dividend Reinvestment Plans (DRIPs), and they can be a great opportunity for people without much cash to join the investor class.

Companies that kids may be familiar with that offer DRIPs include:

Company	Initial DRIP Enrollment	Minimum Optional Contribution	$20 Invested for 20 Years Turned Into	More Information
Hershey(NYSE: HSY)	$250 or 1 Share of Stock	$25	$156.89	Click Here
McDonald's(NYSE: MCD)	$500 or 10 Shares of Stock	$50	$287.28	Click Here
Nike (NYSE:NKE)	$500 or 1 Share of Stock	$50	$491.47	Click Here
PepsiCo(NYSE: PEP)	$250 or 1 Share of Stock	$50	$157.04	Click Here
Verizon(NYSE: VZ)	$250 or 1 Share of Stock	$50	$65.46	Click Here
Walt Disney(NYSE: DIS)	$250 or 5 Shares of Stock	$50	$105.47	Click Here

While they all offer DRIPs, most are not exactly the friendliest for small investors, thanks to high enrollment minimums, high optional purchase minimums, and/or investment fees.

On the flip side, 3M (NYSE: MMM) has an extremely friendly DRIP for small investors. Once you have the single share you need to join the plan, you can invest as little as $10 at a time, and the company covers all purchase and dividend reinvestment fees in the plan. Of course, kids may not know 3M products as well as they do the Disney princesses, but they have at least likely used 3M's Scotch Tape and Post-It Notes.

Simple lessons -- powerful resultsWhether it's "invest even small amounts early" or "avoid paying stupid fees," if the lessons really sink in, then they're laying the foundation for true long-term financial success. Of course, past performance is no guarantee of future results, but any possible investing result is better than paying $80 in interest charges on a long-ago forgotten $20 pizza.

You don't need an MBA in finance -- or even a college degree, for that matter -- to benefit from understanding the basics of personal finance. And if this year's Foolanthropy campaign is successful, the students at Thurgood Marshall Academy will benefit enough to become successful financial fishermen. When all is said and done, isn't that all that really matters?

http://www.fool.com/foolanthropy/2010/12/31/help-teach-these-kids-how-to-fish.aspx