8 Reasons Why The Middle Class Isn't Saving Enough for Retirement

Hello once again!  I'd like to start by thanking you for being here.  Today's financial literacy post was inspired by a recent article, Survey: 1 in 10 not saving a dime for retirement.  Ten percent of people surveyed by Bankrate said they did not contribute to retirement this year or last year!  That's the highest percentage of folks living in the moment (as opposed to preparing for the future) since Bankrate started calling around back in 2011.

We all know that the majority of Americans, especially the middle-class, are indeed saving for retirement.  They're just not saving enough!  The group laughter around water coolers, in staff lounges, and other employee gathering places, originates with the wise guy claiming we'll all be working until we die.  It's funny because we can all relate to the dark financial comedy that is our lives.

I've thought about the retirement cluster(beep) many middle-class Americans are in, and in particular, the multiple reasons that have caused their unique situation.  I came up with 8 lack of retirement savings culprits many middle-class Americans have in common.  They are:

1.  They refinance their home, and squander the equity they pulled out.  The middle-class loves to deck out their home because they believe their home is an asset.  They will do expensive projects, like kitchen remodels, adding a bathroom, an extra room, or even putting a pool in their backyard.  Sure the value of their personal residence may increase, but now they are in at the start of a new 15 or 30-year mortgage.

2.  They refinance their home, and use the cash to finance their adult kids' college expenses.  The middle-class is notorious for going through walls for their children's education.  Going to college is like a right of passage and making the children have to pay for anything would just be the biggest betrayal in all of parenting.

3.  They sign on to a parent PLUS or other private loan to finance their kid's college expenses.  Similar to number two above...anything to not upset the children, right?


4.  They buy, and buy, and buy.  The middle-class loves their shopping.  And when they shop, they shop at the nice stores.  The Baby Gap, Aeropostale, Macy's, Trader Joe's, and other "fine" retailers are where you will see many a middle-class consumer spending their retirement money away.

5.  They have more than two children.  You have more than two children?  Well it's no wonder why you can't seem to put any money down for retirement each month.  My man, if you're at three, do us all a favor and go get snipped!

6.  Gotta have a yearly National Lampoon family vacation.  Where are you taking the entire family this year, Mr. Griswold?  Hawaii?  Disney World?  SeaWorld?  You work hard every year only to save enough money for a week-long family vacation.  It's good times, no doubt.  Memories galore.  But perhaps it would be best for you to have a staycation once in a while.




7.  They buy vehicles that cost more than $30K.  Listen here...if you're a member of the middle-class, like I am, you should not be buying a vehicle that will cost you more than one dollar past $30K.  What are you thinking?  Oh, you got a great financing deal...so what!  That's years and years of payments (principal plus interest) you took on when you clearly did not have to.  Suffer without the luxuries like responsible people do.

8.  They are bad with their finances.  This is an obvious one.  To make it more meaningful, these are the questions about your finances you should be able to answer should anyone ever put a gun to your head: 1) How much do you keep (after all expenses) each month?  2) And what percentage of your income does #1 represent? Answering these two very basic questions will get you thinking about a slew of more.  One of my favorites to ask is: Where's all the (spent or left over) money going?

To have saved enough for retirement these days, middle-class folks need to make adjustments, especially when it comes to our life expectations.  The middle-class like we knew it to be peaked in the 20th century.  The 21st century is a different beast altogether.  So be on your fiscally best behavior out there!

What's preventing you from saving enough for retirement?  Leave a comment.  

Thanks for reading.

6 Ways to Save Money You Blissfully Spend

Thanks for being here!  I'm the type of person that will pick up stray change from the floor.  I know many who are also like me.  See a penny, pick it up.  A dime...oh boy!  Find a quarter...well it's your lucky day.  You should never pass by free money, and leave it for someone else.  And if you agree with this, then maybe you'll agree with what I have left to say in today's financial literacy post.

If you'll bend down, and expend energy to pick up dirty, old coins that nobody wants from the floor, why wouldn't you respect yourself with the same devoutness when it comes to saving money in the following ways:



1.  Buying your own money!  Huh?  You heard right.  Ever go to a locale, like a barber shop or eatery and find out they don't take your ATM card?  Oh darn!  "But I don't have cash on me.  Ooooh....there's an ATM machine."  How convenient for everyone, but you!  These cash dispensers charge $1.50-$2.00 to let you withdraw your own money.  Why would you agree to this?  Unless you're on a date and don't want to look stupid, do what I do:  Bounce on out of there.  Heck no, I'm not buying my money!  And neither should you.


2.  The 35 cent rip off.  Do you drive?  Sure you do.  How often do you go to the pump each month?  I'd say most people, unless they drive a hybrid or electric vehicle, will stop to get gas at least 2.5 times a month.  You insert your card in the slot and get this prompt on the small screen: "A 35 cent debit fee will be applied for this purchase.  Agree?"  ARCO is notorious for charging a 35 cent debit fee in California.  The sad thing is, most of us are too damn preoccupied, trying to get to work on time or something, to pay with credit or cash.  Then, there's the extra dime you paid per gallon by not paying inside with cash.  Moral of this story...carry cash!

3.  Paying your bank to let you use your own money.  Wells Fargo will charge you $19.95 for a box of duplicate checks.  That's insane if you're ordering more than once a year!  Why are you writing so many checks from your personal checking account?  Pay for all of your bills, e.g., water, electricity and gas, cell phone, mortgage, etc., online like the rest of us in the 21st Century.  There's also Paypal and even Bitcoin if you want to eliminate the need for checks altogether.  There are so many other annoying bank fees that I could devote an entire blog post to them.  Don't be fleeced!

4.  The minimum slap in the face.  You're at a shop, a store, a merchant's place you want to reward with your business.  You can't wait to take your inexpensive trinket or food item, whatever, with you and be on your way.  You present the cashier with your credit card.  "I'm sorry, sir," the nice gal says, "there's a $10 minimum purchase for any credit card transaction."  Well, ain't that a biznatch!  Do you go back and find something else to buy?  I don't.  How dare they make me spend more than I intended to!  These sly merchants aren't going to stop this practice until enough customers refuse to put up with it.

5.   Familial guilt.  You go out for breakfast with the family.  Everyone's thirsty.  The waitress comes by and asks what all of you will be drinking.  "I want orange juice," says Junior.  That starts a chain reaction of everyone in your party, grandma, grandpa, your husband or wife, even your toddler who can't even speak yet, asking for OJ.  A glass of orange juice is $2.99 at IHOP!  But you're having a good time, right?  Until you get the check.  Tell Junior he can have water next time.

6.  Forget me not.  You're organized...not!  The bills come in one after the other and you do your best to keep track of which ones are due first.  You get ahead of yourself and pay a couple of them weeks before their due date.  The days go by and with the illusion of being in front of your bill paying schedule, you forget to check the stack again to see if any other are due.  By the time you finally realize, one bill is overdue.  Time to pay the late fee.  My wife, Jessica, lost track of her DMV registration renewal bill.  It was lost from late November until mid-January.  She was charged a $30 late processing fee.  Thanks California!

We spend money blissfully, I'm sure, in more ways then we realize.  All it takes on our part to put an end to it, is a concerted conscious effort.  Why trouble ourselves picking up pennies, nickels, and dimes on the street if we are consistently being nickled and dimed by some of life's most seemingly innocent activities?  It makes no sense!

That's all for today.  Thanks for reading.  Be sure to leave a comment or subscribe to my blog and get posts like this one directly to your inbox.  

My Strategy for A Market Correction

Welcome back!  Stock market investors, were you able to stomach Monday's 588 (Dow) point bloodbath?  Did you feel like you were riding a roller coaster seeing the incredible market swing that ended the day looking like an inverted "U" on the charts?  And just how did you, my friend, react?  Did you sell some or part of your holdings in panic?  Did you buy more of your holdings seeing them on sale?  Or did you ignore the action and go about your day?  Lots of questions, I know.

That's what the market is all about, questioning you at every turn.  But the market becomes more like an interrogator during turbulent times, placing you in a dark room with a single light aimed at the top of your head.



Let's face it, we all saw it coming.  China's stock market was sputtering along before the gas tank finally hit empty last week.  Here in the U.S., earning reports last quarter were about as exciting as watching paint dry.  Sure, a few companies had their day.  And the market finally began to favor stock pickers over indexers.  Until days like Friday and yesterday, of course, where the descent was broad based.  Expect more of this in the days and months ahead.

The financial literacy topic today is on stock market strategy.  What type of strategy should you have at the tail end of a multiple year bull market that is sensitive to both domestic and international events?

In this exact scenario, I like opportunities like today to buy solid companies that have been beat up, that is, are closer to a floor than a ceiling, and that also pay a nice dividend.  I've read and heard people recommend buying strict dividend plays, but unlike good companies that have fallen on hard times, i.e., they're inexpensive for a reason, near high, dividend plays have more downside range during market corrections.

Take the case of Kimberly-Clark, KMB.  Between August 14th-18th, just a few days ago, the stock hovered at $116, near its 52-week high of $119.  The yield on the stock is around 3.2%.  The stock had climbed 10%, a run that began on the last of June, giving investors conviction to get in.  As of the end of trading day Monday, the stock was less than 50 cents from where it started way back in June.  The entire 10% shaved off in just four trading days.  I don't think it's even close to hitting a floor yet, where the only remaining investors will be die hard, long-term holders of the stock.

Beat-up, Value/Contrarian, Dividend Plays

This is the time to do one of two things, either you, 1) Buy more of your "hold" stocks when there is blood in the water, lowering your cost basis opportunistically or 2) Start positions in value or contrarian stocks, buying in blocks every time the Dow falls more than 300 points, and your stocks are below your cost basis.  It's like a successful college football team that has had all of its best players leave for the NFL.  As the coach, you'll need to rebuild your team, starting your players as freshman when you first get them on the field (your portfolio) and bulking them up each summer (at every major sell-off) until you have a bunch of studs ready for the Rose Bowl three or four years later.

Here are some stocks that pay a healthy dividend and are also considered value or contrarian plays.  Note, I recommend these for investors willing to hold for at least one year or more.

1.  Ford (F), $13.19 close on Monday.  Yield, 4.3% and it has basically been crawling on all fours like a baby for a long time.

2.  Caterpillar (CAT), $72.82.  Yield, 4.1%.  The stock has been hurt big time by the global slowdown.

3.  Potash Corporation (POT), $24.35.  Yield, 6.1%.  The stock lost a mere 2.68% on Monday.  That's saying a lot!

4.  Johnson & Johnson (JNJ), $92.82.  Yield, 3.1%.  It fell to as low as $81.79 on Monday before rallying to within only 2.87% from last Friday's close.  If you bought in the low $80s...lucky!

5.  Chevron (CVX), $72.12.  Yield, 5.6%.  Don't want to get into an oil stock?  Why not?  How much further can energy fall?

I think you get the pattern here.  Why not just buy exchange traded or mutual funds that track the market, you may be asking.  Index funds have more investors in them now than any other asset class.  If you're in an index fund today, you will certainly not harm yourself buying more at these dips.  However, selling now is a mistake.  There is still plenty of downside or correction left in this market, and it will take all index fund holders along for the ride.  That's why I prefer individual stocks in this scenario, and especially those that pay a dividend and are value or contrarian plays.

Good luck out there!  Thanks for reading.

Ask These 6 Questions When Buying An Out of State Turnkey Rental

Welcome back!  Today's financial literacy post is based on my experience as an out-of-state landlord with three rental properties in and around the Memphis, TN area.  I bought my first rental property in 2011, my second in 2013, and my third in 2014.  Investing in turnkey rental properties outside of your local area is cash intensive.  You'll need 20% down for a 30-year mortgage.  However, if you invest in a real estate market that has property values more affordable than your own, the reward is a nice monthly coupon you can bank on.

In my case, all three of my rental units cash-flow each month.  But in the world of being a landlord there are always bumps along the road keeping you from a smooth ride to the bank, rents in hand, that begin with a phone call from your property manager.  Below are questions you should ask of turnkey operations (investor relations) you are considering buying from.  Lowering the odds of your unit needing repair or maintenance begins before you sign a contract!

1.  Do you provide a home warranty?  Most turnkey outfits guarantee their rehab work.  It would be rare if they did not.  However, you still need to get the details.  How long is the warranty for?  What does it cover?

2.  Do you offer a rent warranty?  Most turnkey companies will sell you an out of state rental with a tenant in place from the start.  Ask how many months the tenant has in the home before the lease is up!  Also, ask if they provide a rent warranty in the event the tenant breaks the lease.  A tenant has broken their lease on me twice now since 2011.  The first time did not hurt because I still had a few months left in the one-year rent warranty the company I worked with offered.

3.  Are the air conditioning units outside of the home caged up?  Think.  What happens when a home is vacant for some time?  Thieves find out and call their buddies.  I've had a compressor stolen on one of my homes.  It cost me over $2K to get a new one that met the new standards.  The cage I bought for it after the fact was $400.  While having your air conditioning caged up won't guarantee they won't get stolen, it at least makes thieves consider finding an easier score.  From now one, I'm not only asking this question, but I'm also going to ask it be a contingency before close of escrow.  If they say no, then no deal!

4.  Are there trees near the home?  If so, how far and are any in danger of hitting the home should they topple?  I traveled from CA to TN to check out the first rental property I bought.  For the other two, I simply relied on pictures of the home.  Mistake.  This month I got a call from the property management company I have overseeing all three of my units.  The most recent rental unit I purchased has a damaged tree threatening to topple.  The Memphis area had some severe storms this summer.  The first bid from a tree removal business came in at $4000!  The third bid came in at $2,200.  It includes grinding down the stump.  So once again (this is the second time), I have to stroke the payment on all three mortgages so that my rents cover the cost of tree removal.

This is the darn tree they had to remove on my property!

5.  Do you have a property management company you recommend?  This one is huge!  Most turnkey operations either partner with a reputable property management company or they have their own as a division of their company.  In either case, you'll want to ask the management company about employee turnover, i.e., have they had to hire client service managers often, how many properties are assigned to each client service manager, and how do they keep track of previous conversations with clients.  There is nothing more frustrating than having to talk to a different person on the phone more than twice a year.  On one occasion, I had to request I be assigned a different client manager.  Ten percent is a considerable amount of profit to give up on rental income each month.  The service you get isn't always worth it, unfortunately.

6.  Do you do bi-annual inspections?  Some property management companies will offer this service.  They will send you pictures of the home after their inspection and do a summary finding report for you.  I have this service.  The service costs money of course!  It is a trade-off of sorts because you can rest assured knowing the tenant in place is taking care of the home, and being held to the lease's standard.  An inspection can also find things early enough to keep them from turning into major problems for the tenant and for you.

Most turnkey companies do a great job of rehabbing a home.  They know this is a potential buyer's number one concern...the condition of the home, that is.  For the rookie investor, making a cash cow out of your rental unit is not only about fulfilling your cash on cash (COC) return expectations.  It's also about getting an asset with an imaginary force field around the property that is being managed by competent people.  Good luck and feel free to shoot me an email, or comment below, if you have any questions about this post or investing in out of state turnkey rentals.

Thanks for reading!  See you next time.                 

7 Ways to Avoid Raising Entitled Children

How's it going everyone?  Today's financial literacy topic, How to Avoid Raising Entitled Children, was inspired by an article I read on Monday: How Mark Cuban prevents his kids from becoming "entitled jerks."  The billionaire owner of the Dallas Mavericks, and Shark Tank regular, worries about his kids getting ugly on the inside.  I mean, there really is no other way to put it.  An entitled attitude within a person takes away whatever beauty or good looks they may have on the outside.  That's as good as a fact!

I suspect Mr. Cuban is more concerned about nipping his kids' entitlement in the bud (than other multi-millionaire or even billionaire fathers in the U.S.) because of his own upbringing, growing up middle-class in Pittsburg, Pennsylvania.  For many families whose wealth spans at least two generations, not raising entitled children may be difficult to do.  Why?  Because the third or fourth generation is far removed from the struggles and humble origins of the wealth "Founder," and there is no one left to provide perspective.

For interested parents, here are 7 ways to keep your children from growing up as a Socs (see novel, The Outsiders).



1.  Do not let wealth insulate them.  Because of your wealth, you most likely live in a neighborhood where property values are high.  Will you send your kid to a private school too?  Consider sending them to public schools where they can be in the presence of children from diverse backgrounds.

2.  Teach them to give.  Being wealthy is only morally justifiable if you are using some of your earnings to better the lives of others.  Show your children how you donate to charities such as churches, public centers, foundations, etc. and tell them why they should do the same.  If you have your children work for an allowance, teach them to take a one-third portion and put it in a "donations" piggy bank.

3.  Have them volunteer.  You have an entitled kid?  Take them to a soup kitchen.  Have them serve food to the homeless as long as it takes to rid them of their internal malaise.

4.  Spend time with your children!  Your wealth drive is on overdrive, and you are often too busy with your affairs to spend quality time with your children.  Lavish purchases end up being your way of demonstrating your love to your child.  Well no wonder they grow up sick on the inside.  There is a fine balance between modeling work ethic and being involved in your child's life.  How will you know when you're overdoing it?  A child's face speaks volumes.

5.  Stop coming to the rescue.  Entitled kids feel they deserve preferential treatment by adults.  They are not aware of it, however, and act as if they are being victimized when they don't get their way.  Where do they go when they are told, no?  To you, mom and dad.  And how you respond makes all the difference.  Be careful.  You don't want to do anything that will reinforce your entitled child's warped thinking.  Take the time to communicate and get to the root of the problem.  Assign responsibility of fault where it exists without fear of upsetting your child.

6.  Watch yourself.  Do you have a love affair with money and material things?  Do you speak bad of the poor?  Do you demand better service than everyone else at restaurants, hotels, and other establishments?  Do you insult the intelligence of middle-class professionals?  If your children are around when you do some or all of these things...guess what?  You can blame their entitlement on you!  The, "Do what I say, not what I do," idiom also applies here.

7.   Make them work from a young age.  If you buy everything your child asks for they will never learn the true value of work.  Money for them will become a birthright.  Instead have your child work for the things they want.  You have hired help (a butler, maid, landscaper, etc.) you trust?  When your child wants something, have them work with "the help" for a few hours, under their supervision, so they see how hard the "common folk" work.  In their teens, take them to your office or business as often as you can so they see how you earn your wealth.  Have your teen work with your top managers as an "errand boy."

Following these suggestions as you parent your growing children will not necessarily guarantee you won't have entitled children, but at least you'll have the education you need to take action.

Do you have any other suggestions?  Please comment and share with readers.

Thanks for reading and see you next time!

7 Ways to Save On Your Water Bill

The west coast, particularly CA and southern Oregon, is parched.  One outside of CA only needs to spend a few minutes online or on their favorite news channel to hear about the latest wildfire consuming acres upon acres of dry brush, and causing massive emergency responses, including evacuations.  Damn drought!



It would take a flood of biblical proportions to get CA level again.  Alas, Noah and his ark won't be making an appearance here any time soon.  Here's to hoping the El Nino completely misbehaves this fall and throws a huge tantrum of rain.  I shared some financial literacy on drip irrigation and saving money back in July.  Today's post takes us inside of our homes, and we can all reduce water consumption, whether you need to or not, for the sake of shaving off some dollars from our H-2-O bill.  Sorry for the science-e language I'm using here...must be because I'm back at school teaching 8th graders some nifty physical science.

So after being forced to water my lawn and plants (by the city of Oceanside) only twice per week, which has been great for my wallet but not so much for my flora, I started changing some personal habits to conserve water while indoors.  My wife, Jessica, has adopted some of these.  She isn't as much of a looney as I am.  I won't tell you which ones...you can guess for yourself.  Here they go:

1.  Soap shower, shampoo shower.  It's summer time, and the thermometer has recently reached the mid-eighties here in Coastal CA.  So sweating it up is happening, even as cool as we try to stay.  However, to save water and money, I'm alternating my soap and shampoo schedule.  One day, I'll do a shampoo shower to take the oil out of my hair.  The next day I do a soap shower, to scrub the funk off.  This reduces my daily showering time by half.  I'm still getting doused every day, so it's not like I'm Pig-Pen from Peanuts.

2.  Jump into the shower as quickly as possible.  Don't turn on the shower, take your clothes off, go use the bathroom, go wash your hands, or whatever, and then finally get it.  Think about how many gallons of water per year you waste running the shower.  In the summer, jump right in.  Usually, the hot water comes on right away so you can turn the knob to your preferred temperature, and even if it doesn't, so what?  It's hot, so pretend you're jumping into an outdoor pool.  You can also use a water heater timer and have the heating unit turn on right before your set shower time in the day.  Bonus: You'll save on electricity too!  How much money will a water heater timer save? 



3.  Use a shower shut-off.  Saves 20 cents per month.  It's not a lot, I know, but combined with everything else, the savings add up.  A shower shut-off allows you to stop water flow while you lather and turn it back on full blast when you need to rinse.

4.  Don't wash you dishes twice.  If you have a dishwasher, and run it daily, then why are you seemingly washing your dishes prior to loading them in the dishwasher?  Have a small tub in your sink, fill it with water, and soak your sponge with it.  Put dish soap on your sponge if you have to remove crusty food or oils off your dishes, but leave the rinsing to the water in the tub.  Now load the dishes!  You've used a fixed amount of water to prewash enough for the dishwasher to take care of the rest.




5.  Get a low-flush toilet, or spend $20-$30 to convert the one you have to a dual-flush one: Wikipedia.  A standard low-flush toilet will use around 1.6 gallons per flush versus old models that can flush as much as 3.5 gallons or more down the drain per flush.  How many times are you flushing your toilet per day?  That's next!

6.  "If it's yellow, let it mellow.  If it's brown, flush it down."  This is an urban phrase you may or may not have heard before.  Basically, if you're staying hydrated all day as you should be, your pee will not be bright yellow, but you'll need to pee constantly.  Even if it is yellow though, you can let it sit in the bowl until you have to pee again.  This has helped my family out quite a bit.  I pee after my daughter before bedtime in the same bowl she left yellow.  I pee after my wife does too.

7. Don't take baths!  You'll fill your bath tub with way more water than you need to bathe in to start with.  A standard shower head use around 2.5 gallons a minute.   Keeping your shower time to ten minutes will still use less water than a bath.  Shower like someone in the military, and you'll save even more!

Here in CA we're having to seriously consider building desalination plants up and down our coastline if we're to make it out of this water crisis.  A few have already sprung up.  Talk to farmers from the Central Valley and you'll see how important water usage really is.  But water is a resource many of us in the Western world take for granted, failing to truly understand how important it is in other parts of the world where water is scarce and people lack access to it.  We should all practice some form of water conservation, and not just for the sake of our wallets!

Thanks for reading!  Don't forget to subscribe before you leave and get posts like this in your inbox.

Should I Finance College with An Income Share Agreement?

This is my 200th post!  Reaching this milestone was nothing easy, let me tell you.  I did have some help along the way courtesy of great guest authors.  I hope I can continue to be a part of your life, my loyal visitor, as I endeavor to educate and entertain on all matters financial literacy.  Thanks for being here, and here's to the next 200!

Before I get started on today's topic, I'd also like to thank Jeremy Biberdorf, blogger at the excellent personal finance blog, Modest Money.com, for allowing me to guest post.  If you like to read about personal victories where someone overcomes an addiction, and takes a bunch of money back from the hands of the future, this is your article.  Enjoy!

Now onto Income Share Agreements, or ISAs for short.  These are basically private loans where an entity, such as a university, a non-profit, or a private company, agree to fund an individual's education for a portion of their future earnings.  They're all the rage right now, as the college loan industry is getting worked like anyone who steps in the ring with UFC Champ, Ronda Rousey.




I went on Google and found several articles that explain ISAs and give perspective from people involved, e.g., college professors, CEOs, politicians pushing the agenda for more ISA clarity, etc:

Slate.com: "Because You're Worth It," by Alison Griswold

Deseretnews.com: "Income Share Agreements: A Better Way to Fund Higher Education?" by Jan Miller

Forbes.com: "Income Share Agreements, and their Role in Making Higher Education More Affordable," by Richard Vedder

Income Share Agreement (Wikipedia)  This one is the most informative in my estimation.


Though not new--the idea of an investor taking a fractional interest position in someone else's earnings prospects has been around since the 1950's--it's just now that students have taken to consuming ISA contracts, and those who were early on the scene (2010-2013) have not yet been asked to provide their review on the deal they got.  They may have, but I couldn't find any first person reviews.

ISAs are in my opinion a last source of funding.  Future college students must first exhaust what they can get, if anything, from FAFSA, relatives, work study, and lastly, low-interest private loans.

Source

The claim is that ISAs will provide students from disadvantaged backgrounds who do not qualify for low-interest private loans, a better alternative.  Let's think about this.  If I don't qualify for low-interest private loans, it usually means that I'm not considered the "cream of the crop" by lenders.  In other words, I'm considered risky.

The terms, if qualified for an ISA, would not be favorable; either they'd stick it to me by virtue of, making me pay from my earnings for an extended period (15 - 30 years), OR, making me pay a high interest rate (10% or more) on my loan.  Be mindful that "risky" in the case of an ISA for investors is defined as a graduate who does not make more than $18K a year, basically, a deadbeat.  Graduates don't have to pay a single penny back of their loan if they earn less than $18K!  So if you're a college student who graduates, and procures a great career, you're stuck with a private loan that, unless it allows for prepayment (with penalty no doubt), will cost way more than what your education was actually worth!

So like any other loan, if you choose the option to fund a part of your college education with an ISA, be smart at the beginning prior to signing anything, and try to get the best terms you can.  Look for things such as:

1.  A prepayment penalty clause.  What will it cost you to pay your balance in full before the life of the loan is due to expire?

2.  Is refinancing an option.  Say you sign an ISA prior to the start of your sophmore year (maybe you didn't get awarded enough in Federal Aid this time out or something) and in the middle of the year, you decide you want to change majors from Sociology to Engineering.  It happens!  Can you go back to your borrowing institution and refinance your original ISA upon proof of being accepted to the College of Engineering?  If you had reported Engineering as your major from the get-go, you would've undoubtedly been given better borrowing terms.  Are you stuck now?  Ask, Ask, Ask, kid!  Before you sign on the dotted line.

Now I want to show you why not all ISAs are equal with a visual:

"An Income Share Agreement (or “ISA”) is a financial vehicle in which an individual or organization gives a fixed amount of money to a recipient who, in exchange, agrees to pay back a percentage of his/her income for a fixed number of years."  From Wikipedia.  The key words here being, "fixed number of years."

Hypothetical Private Loan Company A Offering the Same ISA Contract to Everyone

Amount being Borrowed	For fixed length of time of,	At a rate on future earnings of,
$10,000	10 years	10%
Scenario 1	Bank Teller (underemployed Psychology graduate)
Salary	Monthly Net Earnings	Monthly Loan Payment	Annual Payment Total	At 10 years
$25,000	$1,750	$175	$2,100	$21,000
Scenario 2	Teacher
$40,000	$2750	$275	$3,300	$33,000
Scenario 3	Software Engineer
$95,000	$6,500	$650	$7,800	$78,000

 In each of these three scenarios, the investors make money.  Of course, we are talking a static situation where there are a) no changes in earnings for ten years and b) no changes in work profession or time on the job.  This won't happen because people usually get raises over time, they are promoted, demoted, or fired = unemployed.  From this data table, you can see that the best possible ISA outcome for students going to college would come from:

1.  Working with an entity that provides you the best terms.  If you apply with one that lets you measure yourself, i.e., allows you to submit your credit score (if any), work history (if any), grade point average, SAT scores, prospective major, etc., and find your interest rate is still over 10% for a ten year fixed term loan (using our example above), then going with "Company A," may be a good thing for you.  Upstart.com uses an algorithm by using data points such as the ones I mentioned here, to compute your rate.

2.  If you're an "elite" kid, you will want to stay away from places like "Company A."  You'll want your established credit, sources of income, SAT scores, etc., to count.  So working with an entity that works like an insurance company (good driver discount, etc.) when letting you borrow money, is where you want to head.

ISAs turn out to be more like indentured servitude, far worse than any private loan can be, as interest rates and time commitments climb.  As a high school graduate, entering your first year of college, the picture of your career future out of college is still very fuzzy.  I would not recommend anyone apply for an ISA, unless they have no other way to finance a college education, until they have started their upper division coursework.

Better yet use an ISA, if you have to, to fund grad school.  By then, you're intrinsic value as an earner has risen (you've held a job as an undergrad, you've used credit wisely, you've made the Dean's List, etc.) meaning you can command more favorable borrowing terms for yourself.

Should You Finance College with An Income Share Agreement?

Only if you have no other recourse.  That is it because there are no good reasons why you'd want to turn away better borrowing terms, for a fake "peace of mind," other than you not believing in your potential or having a sorry outlook of the future.  Your future!  

Think about this: even though you will be protected as a borrower in an ISA if you happen to land on dire straits after college, and don't break an income of $18K for 1, 2, maybe even 3 years, will your mind be truly at peace?  Will you be happy knowing that because you are under-employed, and your earnings have diminished, you will now have to pay back less money each month to your note holder?  Only losers would be happy about misfortunes like this.

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Huge Parenting Mistake, Buying Your Kid An Expensive Cell Phone

There are many mistakes you can make with your wallet.  The biggest mistake of all, if you're a parent, is trying to substitute your lack of participation as a guardian with the ringer that is gift giving.

Though your money may save you at times when your children hate you the most, I can assure you somewhere down the line it will be time for YOU to pay the piper.  Do you know when kids let their crappy parents really have it?  I mean like seriously go on a vengeance spree aimed at killing you brutally, but slowly, for all the things you did or didn't do?  I'll tell you...high school!

I was at least one fourth family counselor as an assistant principal at a large public, urban, high school the past ten years.  And I saw many parents attempt to keep the peace between themselves and their teen son or daughter, by buying them out.  Nice clothes, fancy shoes, but most expensive of all, a state of the art cell phone with a bling-bling case to go with it.

I'm not going to get all educational with you here.  Yes, in today's society we have many parents, especially single-head of households, who struggle raising one or more children and do whatever they can to keep their children "happy."  However, these parents aren't alone in making poor parental economic decisions.  Parents of all walks of life have a chink in their armor, pierced by the incessant requests of adolescents and teens.  

"Mom...can I get new shoes?"
"But I just bought you new shoes two months ago."
"I know, but the ones I want are double-air gel Zooms with glow in the dark laces.  Every kid at school is getting them!"

A week later mom or dad capitulates, and gets those Zooms so the annoyance stops.  And it does for a while, until the same kid drops his or her cell phone, cracking the screen.  Then it's back to the mall, right?

For the life of me, I cannot understand why parents buy their kids, some as small as 4th and 5th graders, expensive cell phones.  School officials and many teachers hate seeing these sophisticated gadgets around, for good reason.  I get that parents want to be able to communicate with their kids while school is in session.  And also that they want their kids to be able to reach them at any time.  But boy are you, mom or dad, making a huge mistake allowing yourself to be convinced (by someone smaller/younger than you) on spending top dollar for a smart phone not meant for your own hands.  Here are three reasons why:

1.  Your kid is overconfident about their ability to take care of their smart phone.  That was one of their selling points, right?  "Don't worry, mom, I will take great care of it and be as responsible as I am with Lassie."

Source

2.  Your kid is naive about the underground workings of a public school.

3.  Your kid doesn't have the self-control you think they have.

Public schools are where smart phones go to get smashed, cracked, lost, or stolen.

On any given walk around the school during a recess, I am able to spot a kid using a cell phone with a cracked screen.  As a an assistant principal, numerous smashed or lost cell phones were turned in to me by responsible students.  In fact, I'd have an entire collection of them in my desk drawer by the end of the school year.

Let me scare you into some sense now.

In my ten years as an administrator, I had at least 300 parents come to my office upset about their kid's phone being stolen at school.  I had at least 500 kids ask me if someone brought up an (insert their expensive brand) to the office.  I also had over 200 cases of spending time tracking down a stolen phone, and had over 1000 incident reports where the incident was a stolen phone, placed inside my mailbox by a student.

The irony of it all was that every year, the school published their liability policy: "The school is not responsible for lost or stolen cell phones, and will not investigate theft in some cases.  Bring these at your own risk."


The school year is about to begin again.  I guarantee you, mom or dad, that you will most likely not read the student manual, or the policies on electronic devices at school, and when your son or daughter's expensive smart phone is stolen, you will be upset at the school.

You will blame the teacher who confiscated the phone (because your kid couldn't stop using it in class) and left it in their drawer for a thief of a student to opportunistically steal it during class.

You will be upset at the teacher who wasn't looking around when your kid left their iPhone 6 on top of their desk to go sharpen their pencil, only to return and it no longer being there.

You will complain about the security in the locker rooms because your kid's Samsung Galaxy 8 was stolen out of their locked locker.

You will yell at the School Resource Officer for not going after your daughter's friend who "borrowed" the phone only to have let someone else use it and now...it has disappeared!

I could write an entire book on the most creative ways I've seen expensive cell phones be stolen at school.  Legally, every kid that has their cell phone stolen by one or more scummy kids is a victim.  But in all honesty, a quarter of this victimization is placed on the shoulders of parents who gave in, and bought their kid the $300-$800 phone.  Another quarter of this unfortunate scenario is on the kid who trusted their public school environment, or their attention to detail, way too much.  And finally, a half of the blame is on our society for producing bad kids who steal from anyone to make easy money.

If a school has an electronic policy and you still allowed your kid to go to school possessing an expensive cell phone, DO NOT DARE BLAME THE SCHOOL!

The Solutions:

1.  Buy your student a cheap phone!  One that can text and make calls, and that's that.  Students do not need expensive cell phones with data plans that in some cases rival the ones some executives have.  

2.  If they whine and complain about not having a smart phone, buy them two phones.  You can get a "Straight Talk" prepaid phone at Walmart with no contract and month to month service for as little as $28.88!  They turn in their smart phone (the one under contract) to you each morning before they leave the house, and you give them their prepaid one to have at school.  Seems a bit ridiculous for a kid to have two phones, I know, but if not this, then you are stuck with number one or having to do number three below:

3.  Buy Insurance.  You will be paying more monthly over the lifetime of the phone, and you will need to find one that covers it all: loss, damage, or theft.  Read the fine print!  

Even if you insure your kid's phone, the emotional pain of losing a phone to carelessness or theft, is too much for many teens to handle.  Some take days to recover from the trauma!  Meanwhile, they're unable to focus on their learning.  This is why as an educator, I recommend solution #1.  Let them have an at home tablet they can tinker with.

Get them used to a basic phone from day one and enjoy peace of mind through senior year.  If you don't heed my advice and challenge the odds, if something happens, remember...I told you so!   

Back to School Mistake, Spending Too Much On Your Teen's Backpack

I have seen quite a bit of neglect in my career as an educator, including ten years as an assistant principal.  This time, however, I'm not referring to the neglect some children face at home in the hands of negligent parents.  No.  Instead I'm going to talk to you about your children and the neglect they give their things, the things you have paid handsomely for, at school.  Starting with their backpacks.

Parents are spending way too much for school supplies.  More than ever in fact: The staggering costs of back to school supplies.

First of all, yes, you should buy your student a backpack.  Even if your student doesn't want a backpack, feeling backpacks are uncool, you should buy them one nonetheless and force them to use it.  I mean it!  (Force them).  They will not be prepared for learning missing what they need for class...all because they were too lazy to carry an item from home.  In some cases, where lockers are not available at school, backpacks become indispensable.  Similarly, backpacks allow your student to carry non-educational items, like food/snacks and water, meaning, they will not need to buy more expensive foodstuffs at school, and they'll have energy to think.

Unfortunately, for a parent, buying their student a backpack brings with it added parenting responsibility.  Backpacks reveal many things about a student.  Backpacks tell stories.  This is why, as a parent, I need you to:

1) Smell your adolescent and teen's backpack.  What are you smelling it for?  Marijuana.  Sorry...but backpacks are where medicine canisters or baggies containing marijuana are usually hidden.  Even if you don't suspect your son/daughter is using marijuana, the backpack will tell you whether or not they are hanging out with friends who do use the drug.  The smell is hard to mask.

2) Search the backpack randomly.  You will be doing three things here: A) Making sure your student is not carrying anything they shouldn't be carrying around B) Seeing whether or not your child, tween, early teen, is organized and doesn't just shove everything inside.  C) Keeping your student at bay, i.e., making sure they think twice about placing contraband inside.

I've done my job here as an educator to warn you about the dark side of backpacks, now onto why you shouldn't overspend on a backpack for your adolescent or teen.

Students Thrash Their Backpacks

It's a travesty how some kids treat their belongings.  The average student will have done the following to their backpack at least once a school year:

1) Tossed it on the ground from afar.
2) Let it drop on the ground while stationary.
3) Used it as a canvas and written on it (with a Sharpie or pen) or let a friend write on it.
4) Overstuffed it (with clothes, books, binders, etc.) beyond its design and capacity.
5) Used it to strike a buddy in jest.
6) Used it as a seat.
7) Used is as a headrest.
8) Let a friend borrow it.

Another Reason Why Not to Overspend on A Backpack

Backpacks are quite often stolen in public schools.  I can't say how it is at private school as I have never worked in one.  This is yet another element of public schooling that makes paying too much for items kids need for school a mistake parents often make.  Here's how to help your student prevent the theft of his/her backpack.

Make sure you stress to your kid to never leave their backpack unattended.  Have them pretend they are at the airport while at school.  Have them write their name on their backpack in Sharpie, big and bold before the first day of school.  Lastly, tell them not to let anyone borrow their backpack.  If it is "lost" by a "friend" who borrowed it, the school administration cannot consider this a theft.  If I had a nickel for every "friend" who "lost" an owner's item that was originally borrowed, I'd be...

How much should I spend on a Backpack?  What type of backpack should I buy for my adolescent/teen?

Don't spend more than $35 on a backpack.  For the reasons I have given you above, it is best if you err on the side of caution.

Buy a darker colored one (black, grey, navy blue) so your kid doesn't get too creative writing on it.  If you don't have to worry about this, then go ahead and allow your child to pick out a colorful one.

With these considerations in mind, I went online looking and found the perfect backpack for middle and high school students:


Jansport Backpack All Color Black Navy Grey Blue Purple Pink Green Red BAG-COLOR: Navy
(If you're considering buying one, please use this link and help keep me in the blogging business)

• 
  
• Average Customer Review: 4.4 out of 5 stars  See all reviews (112 customer reviews)
• Amazon Best Sellers Rank: #98 in Sports & Outdoors (See Top 100 in Sports & Outdoors)
  • #4 in Sports & Outdoors > Outdoor Recreation > Camping & Hiking > Daypacks & Casual Bags > Multipurpose Daypacks
  • #43 in Sports & Outdoors > Sports & Fitness > Accessories
Product Warranty: For warranty information about this product, please click here

I see students with this classic backpack all of the time at school.  You can get it at Amazon for only $30.88 (a slew of colors) with free shipping!  Not a bad deal.

Okay, so in sum, there is more to backpacks than meets the eye.  I hope you have learned that it doesn't pay to let your student go crazy with their choice of backpack.  It has to be functional, durable, and graffiti discouraging.

Before I leave I want to refer you to a great article on how to extend the life of a backpack by keeping the zippers (the most likely place for a backpack to fail) in great condition all year long: Tortugabackpacks.com.

Thanks for reading!  C-ya next time!