By MainStreet.com Staff Writers

When it comes to getting what they want, kids are quick studies. Why not use that trait to teach your kids how to manage money from an early age? These days, many adults are learning the importance of fiscal responsibility the hard way. You can save your kids from those hard lessons by making them money savvy from the beginning.

Here are some strategies you can use to instill solid financial habits in your children early:

1. Give your kids a regular allowance. Establishing a regular income for your kids in the form of an allowance is key to teach a child how to make a budget (see strategy No. 2). Your child’s age can determine his allowance (for example, $1 per year of life) or it can be linked to chores or tasks. Make sure the allowance is enough to cover the expenses you expect your child to fund, however. If you expect your child to buy lunches each day, for example, make sure the allowance is enough to pay for that plus a little more for other expenses.

2. Help your child make a budget. Getting your child in the habit of creating and managing a budget will prevent many financial difficulties in the future. Help your child prioritize what is import to her, and together create a budget that allocates her allowance to those things. Go over the importance of saving, investing and charitable giving in addition to spending. Suggest a percentage of your child’s allowance go toward those goals. Teach your child to separate her allowance as soon as she gets it into difference categories for spending, savings, investment and charitable giving. (And check out MainStreet’s review of a piggy bank that does just that.)

3. Let your child take financial responsibility for some large purchases. As your child gets older, let him take on the responsibility of saving for big-ticket items. For example, if your child wants a new video game that costs $50, teach him how to save toward that goal. Sit down and help him calculate how much he would need to save for how long in order to afford that purchase. Then help him adjust his budget to reach that goal. If your child has to pay for large purchases himself and sacrifice other expenses, he will learn the value of his money that much sooner.

4. Teach your child about the stock market. Once children understand basic math like addition, subtraction and multiplication, understanding how to invest in the stock market isn’t that far off. Explain how the stock market works in very basic terms using stocks of products your child is familiar with such as Disney (Stock Quote: DIS). Help your child track a stock for a short period and do the basic calculations to determine if an investment would make or lose money over that period.

5. Help your child start investing. Once your child has an understanding of the stock market, help her set up a real investment. The funds can come from your child’s investment savings, or you can provide some seed money or matching money. Track how the investment performs regularly with your child. If your child has a part-time job, consider starting a Roth IRA to teach the importance of saving for retirement. Investing in a Roth IRA early can teach a valuable lesson about compound interest and provide a solid start for future retirement savings.

By Althea Chang | MainStreet.com

There’s a long-held belief that investing in a 401(k) is the best way to ensure you’ll have an income throughout retirement . Actually, you may not be able to rely on a 401(k) as your primary source of retirement income.

Many 401(k) contributors may be new to investing and look to fund managers for consistent returns over time. But, as we’ve discovered during this economic downturn, mutual funds aren’t a place where you can just plunk down your money and watch it grow. Plus, the fees you’ll have to pay and the mutual fund choice available to you may limit your returns or even add to your losses.

Placing Blame
“The rub on 401(k) plans is the additional expenses that are affiliated, and depending on the 401(k) that’s offered, the restrictions as far as what funds are offered,” says Timothy MicKey, managing director of Monument Wealth Management. Additionally, some 401(k) “trustees are not on top of things the way they should be,” he says. For example, some mutual funds that were once great investment options may be less so when a specific fund manager is no longer in charge, but 401(k) trustees may fail to update mutual fund choices in response to that. In addition, investors “have to realize that for the last 18 months, diversification did not work. Almost every sector went down,” MicKey notes.

“My biggest fear is that people were overly aggressive and waited before they made any allocation changes,” says MicKey. “People who have been hit the hardest went into very conservative products, not understanding that conservative products would be the next shoe to drop,” he adds.

Missing Pieces
“Many people would have no investments if it was not for their 401(k),” says Kathy Williams, an Oklahoma City-based financial planner.

Retirement savings plans via 401(k)s and IRAs were initially meant to play one part in an individual’s retirement income, supplementing pensions and social security benefits which make up a so-called three-legged stool. However, not all employers offer pensions, and Social Security payouts are facing steep cuts in the next few decades.

“Basically, only government and union employees have pensions now,” says William Driscoll, a Plymouth, Mass.-based certified financial planner. “Many people don’t have the ability to save adequately, so they need to think in terms of a modified lifestyle, not spending up to their income, but less.”

Real estate, for some, has replaced pensions to hold up income during retirement, as investors bought the biggest homes they could afford and flipped them for a profit during retirement. But while Driscoll says this strategy might work if you have 10 to 20 years until retirement, in this housing market, “if you want to flip it in three years and come out with six figures, you can’t really count on that.”

“You get the biggest bang for your buck with individual stock issues, but you can’t go in unless you have a diversified portfolio. You’ve got to have at least 20 companies,” MicKey says, which would require investors to do a great deal of research, which they may not have the time or the will to do.

Diversifying for Safe Savings
A number of investment advisors may be pushing diversified, age-based or target-date mutual funds for those who want to leave asset allocation to a fund manager, but funds that cater to your specific risk tolerance may actually be a better choice.

“I personally don’t like [target date funds] at all,” says MicKey. There’s nowhere in their planning that they take into consideration the economical cycle. “I’m much more an advocate of lifestyle funds … based on risk tolerance, which is a much wiser way to go.”

And while CDs may be a secure investment, “CDs serve a purpose for liquidity needs within a certain period, for example, if a client wants to buy a house within three years, go on a vacation or short term goals, not long-term,” says financial planner Williams. “Generally with the taxes that you have to pay on the interest along with low interest rates, they’re not adequate for long term investing strategies.”

Foreign exchange could increasingly play a part in long-term investing, including investing for and during retirement. “People are more savvy to the fundamentals of major economies of the world,” says Betsy Waters, global director of DBFX, Deutsche Bank’s online foreign exchange trading platform( Stock Quote: DB). Waters notes that most people already have some currency exposure in their retirement portfolios, which may allow them to hedge against other others bets, for example on domestic stocks.

Reconsidering the 401(k)
You may consider a 401(k) a must, however, if your employer matches your contributions, or if you’re lucky, makes contributions whether you do or not.

Since traditional 401(k) contributions are made with pre-tax money, the money you would have spent on taxes is invested. Your earnings are also compounded over time, which allows earnings to become part of your underlying investment.

Before you invest or consider moving your money from one fund to another, you’ll need to look at your investment horizon and risk tolerance. How many years from now do you plan to retire, and how long will you need your money to last?

When you’re looking at individual mutual funds, do your due diligence to make sure the fund is appropriate for your needs by using resources like TheStreet.com Ratings Screener.

Younger people “have a wonderful chance to get ahead of the curve.” Says MicKey. “Now is the time to dump as much as they can afford into [a 401(k)]. But if you’re in your 50s or 60s and you’re concerned about your retirement savings, you may want to meet with a financial advisor to talk about changing your strategy.

By MainStreet.com Staff Writers

529 college savings plans are accounts set aside by parents, grandparents or guardians to pay for the future tuition of young children. Earnings grow tax-deferred, and the minimum contributions are kept low to allow various families to be able to afford these plans (i.e. $50 a month). Further, funds are not subject to taxation when they are withdrawn, as long as they are used for approved educational purposes. (For more information, check out MainStreet’s 529 plan explainer.)

But 529 plans do have a contribution limit. So if you’re looking to give more to your child’s education (or you want to shop around before settling on a savings plan), here are some other options.

Coverdell Education Savings Account (CESA)
CESAs can be purchased through most brokerage and fund companies. This option provides broad investment choices and features tax-free earnings as long as they are used to pay for qualified education expenses, including elementary and high school costs.

* Contribution limits: $2,000 per year, per child.
* Qualification restrictions: Adjusted gross income must be less than $110,000 for a single filer or $220,000 for those married filing jointly.
* Financial aid treatment: Same as 529 plans.

Taxable Account
Taxable accounts have no contribution limits and can be invested broadly in stocks, bonds or mutual funds. There are no direct tax benefits but you can save on taxes by investing in an index fund.

Kiss Trust
This is an irrevocable trust that is designed to earn a large sum of money over the lon -term. Even the most modest gift can grow into hundreds of thousands of dollars over time with the compounded growth in a Kiss Trust. These accounts can start at birth and mature over time until the child is retirement age, if desired. A gift of $2,500 to a small child, for example, has a projected value of $1.3 to $1.5 million by the time the child reaches age 65 because of the compounding interest set up in this type of trust. The funds can be taken out at college age as long as the trust is set up that way at inception. These funds stay in the donor’s name, so they never adversely affect the student’s financial aid consideration. A Kiss Trust can be invested in a tax-deferred annuity or an after-tax mutual fund.
UGMA/UTMA Custodial Account
Most financial institutions can set up UGMA/UTMA accounts for you. The first $800 of income is tax-free if the child is 13 or under. The next $800 is taxed at the child’s rate and any more income is taxed at the parents’ rate.

* Contribution limits: None, although gifts greater than $11,000 per child are subject to gift tax.
* Qualification restrictions: None.
* Financial aid treatment: Beware that this account is considered to be a student asset, so it is assessed at a 35% rate according to the national financial aid formula.

Infinite Banking
Under this concept, loans are taken out from whole life insurance policies to fund college tuition for beneficiaries. The beneficiary is not taxed and there is no adverse affect on financial aid consideration because it is not in the student’s name.

When it comes to investing for retirement there are a lot of factors to consider. Some common ones include your personal tolerance for risk and determining how much you’ll need to live at approximately the lifestyle you enjoy now. Many people find these topics overwhelming and confusing.

Enter: time horizon investing.

Time horizon investing simply means that you take into account the time you have until you need to tap into your investment. You’ll need to know four things in order to turn time into money:

1. Know Your Present Needs
Figure out how much you need to cover your basic expenses and other short-term financial goals.

2. Anticipate Your Future
Make a list of tomorrow’s needs, goals, dreams for yourself and your family.

3. Predict When You’ll Need the Money
You may determine you can retire early… or need to work for as long as possible. This is what is meant by narrowing down a “time horizon”. Use a retirement calculator to determine if you have enough saved or have a shortfall of cash.

4. Accept Some Risk
You’ll need to carefully weigh potential rates of return, your objectives, and, as previously mentioned, your tolerance for risk. Some risk will be necessary to outpace inflation.

The best bet is to figure out what you can afford every paycheck, TODAY, that you can invest for the long haul. If you are overwhelmed by choice, a good solution is a target-date mutual fund. Choose your approximate retirement date and the mutual fund will shift from aggressive to safer investments as you age. The most important thing? Just starting.

Have you heard of the “Slow Food” movement? This popular, world-wide movement started as the preservation of food traditions. But, it’s expanded to include other food issues as well. For example, many Slow Food supporters are very interested in the food’s source and preparation, and how that preparation affects the environment. The latter — appreciation for and protection of the environment — is also the basis for a new movement in the financial world calling itself “Slow Money”.

“Slow Money” movement was named by Woody Tasch, Chairman of the Investor’s Circle, a business investment group. “Slow Money”, Tasch writes, is “a new vision for investing that looks above the top line and below the bottom line [by] put[ting] soil fertility back into the calculus of investing.” [source: Ode Magazine]

“It’s remarkable, but people who grow their own food, who reconnect with the soil, can immediately appreciate the implications of an economy that doesn’t respect the power of ecology,” continues Tasch, quoted in the Ode Magazine article linked above.

Tasch and his group invest in companies that show positive growth and solid returns. However, their mission is to invest so that company growth is not at the expense of harming the earth. Also, unlike other investment firms which demand unsustainable financial models for their investors (such as double digit returns every year), companies are rewarded for acting responsibility and growing investments slowly but surely.

Are you interested in doing your own version of “Slow Money”? First, consider how you can make your investments more socially responsible. Here’s a brief guide on how to invest using socially responsible criteria. Next, vote with your wallet. Reward businesses and products that share your values.

My prediction is that as it becomes more mainstream to understand your impact on the environment the same will carry over into our finances. Already SRI investing is experiencing larger growth every year. Now, the venture capitalists are doing the same thing. I think that’s great!

By MainStreet.com Staff Writers

Young people often think they don’t know enough about the market to jump in and start investing. But fear of the unknown and the misguided belief that retirement planning can wait can cost you big in the long run. There are numerous advantages to getting into investing while you’re young, but the single biggest advantage is time. 

When you start investing in your 20s, you get way more returns for you money. With compounding interest, your money grows significantly over time, and a little more time can make a big difference. Additionally, the more time you have to invest before retirement, the more ability you will have to recover from any market losses.

Here are some essential points for young people to remember when they start investing:

Start now no matter how much money you have to invest.

You don’t need a large sum of money to start investing in the market. There are 180 mutual funds that have minimum investments of $250 or less, according to Morningstar. Mutual funds are ideal for young investors because they allow you to own a bunch of company stocks without putting up a bunch of money. The earlier you start investing, the less you will have to put in the market to meet your goals. For example, if you wanted to have $1,000,000 saved for retirement at 65 years old and assumed a 10% rate of return, you would only have to contribute $179 per month if you started investing at 25 years old. That’s a total of $85,920 over 40 years. If, however, you waited 20 years to start contributing at 45 years old, you would have to put out $1,381 per month. That’s a total of $331,440 over 20 years. It will have cost you $245,520 by waiting to invest.

Keep Your Eye on the Long-Term Horizon.

When investing in equities, you can’t let the day-to-day trials and tribulations of the market scare you off. Both new and old investors are often spooked out of the market by short-term losses, but if you try to time the market, you can lose more than you save. In the current market cycle, stock prices have fallen sharply, but that does not mean you shouldn’t still invest in some equities. In fact now is probably a good time for young investors to buy in because you can get more shares for your dollars. If and when stock prices rise again, you’ll enjoy even larger gains.

Don’t Forget Debt and Savings.

As important as investing is, you can’t neglect to pay off your debt and build a healthy emergency savings fund. Getting out of debt will save you in interest payments and improve your credit score. If you have a credit card with an 18% interest rate, paying it off is almost like getting a return of 18% on your money.

The current economic crisis has shown the true importance of having liquid savings on hand. Financial advisors have long advised people to have 3 to 6 months of expenses in emergency savings, but lately that recommendation has been revised up to 6 to 12 months. Your savings should be kept in a short-term vehicle like a certificate of deposit (CD), or money market account, so that it’s easily accessible if you lose your job or have to cover for emergency expenses like car repairs or medical bills. When starting out, it’s important to allocate your money to paying off debt, building savings and investing. When your debt and savings obligations are met, then you can focus primarily on investing.

By Roger Nusbaum | MainStreet.com

These are interesting, and complicated, times for investing.

The U.S. stock market peaked 18 months ago, during which time there have been some questions answered and some new questions raised. While there are a few signs of “green chutes,” the best indicator, the stock market, continues to stumble along near a bottom.

Pimco’s Mohamed El-Erian recently made a rather loud case for not buying stocks or government bonds on CNBC. There is news about colleges slashing budgets due to poor endowment results and news about pension plans needing to take risks previously unconsidered to meet pension obligations. Those headlines prod individual investors to consider their long-term investment plans.

Coincidentally, I have had two media requests this week (one local and one national) on the topic of what investors should do after their investments have fallen 50%, the month-long rebound notwithstanding. Making large portfolio changes after a big decline and in the middle of a deep economic recession is problematic for many reasons.

There have been financial crises before and, while the details are different, there are similarities. Similarities include a big, fast decline and several hope-raising bear-market rallies. Similarities in sentiment include denial of the problems early on in the crisis, panic as the declines accelerate and the growing belief that this time is different.

Making financial life-altering decisions is simply the wrong thing to do in the middle of a crisis. Emotions are more at play now than two years ago. How many times has more emotion helped make a situation better? More emotion likely means less logic. A financial plan calls for savings and compounded growth of those savings. You already know that we collectively do not save enough for the future. An insufficient savings rate and a lack of compounded growth add up to a longer work life and the danger of running out of money.

For many people, the problem isn’t owning stocks, but, more likely, owning too many stocks, which becomes a question of proper asset allocation. Perhaps in the future we will see people change their asset allocation, but it is too late—or perhaps too early—to make asset-allocation changes. Does anyone think the best path to portfolio recovery is to sell stocks after a 50% decline? That’s an overwhelmingly bad strategy with little chance of success.

This article isn’t meant to be a pep talk. It might be a while before broad market averages start to show signs of health (a 25% rally in three weeks is not healthy), but an uncomfortable ride in the stock market for a while longer doesn’t mean the market is permanently broken. This is prime time for people to succumb to emotion and sell low. If you do one thing, avoid that mistake.

As we address these questions, there are truisms we must understand with a clear mind before giving up. To be clear, giving up is the wrong thing to do.

The stock market has an “up” year 72% of the time, which means it has a “down” year the rest of the time. As different as this time might feel, most of this has happened before: 50% decline, bank failures, global contagion, depression, an apparent lack of a solution, 12-year round trip to nowhere for stock prices. All this has happened before, albeit with different details.

Saving for the future is more important than ever before. With many people losing a great deal of their savings with the sudden downturn in the economy, people are definitely feeling the pinch. Many people e struggling to start re-building their nest egg, but there is no better time than the present!

Why not today? – One reason that you really should start to re-build your nest egg today is that you do not really have a bad reason not to. Unless you have lost your job and are struggling to get by and can’t set aside money for savings, you should really try to start saving again towards retirement. The money you put away for your future is extremely important. If you do not want to work forever, it is really important to start thinking about the future.

Can’t Live In Fear of Losing – Many people who just lost a lot of their retirement savings with the downturn in the economy are finding it hard to start saving again. However, the truth is, if you do not start to trust that the economy will turn around, when it does you will not have put any money into savings and will have missed out on a great deal of time that you could have been saving.

Great Time to Invest – Stocks are selling at a really low price right now. If you have some money that you can set aside and take a little ‘risk’ in the stock market, maybe this choice is for you. Putting some money into stocks is a great way to get some money back ones the economy decides to turn around. How about investing in companies you believe in? If you believe in the company and so do others, hopefully it will not be going out of business!

High Interest Savings Account – Opening a high interest savings account is not as risky as investing, but you are still doing something with your savings. High interest savings account reward you for keeping your money in their account by giving you monthly interest on your money. Unlike regular savings accounts where you get a few cents each month, high interest accounts can amount to a decent amount of money each month which will add up quickly throughout the year.

You want to be prepared when the time comes to retire and start your life after work. However, unless you begin to re-build your nest egg you will not have enough money saved when the time comes to retire. During a time when the economy is so tough, it best to learn lessons from the depression.

— By Hannah Waters, Geezeo.com

Photo by: moogoo

Many people avoid opening their investment statements, including retirement accounts, such as a 401k.  As the unopened mail piles up the accounts suffer.  Now is the time to swallow that bitter pill and check back in with your retirement.

It’s all about personal responsibility regarding your financial life.  Know where you are spending, get a plan for saving, pay down your debt, file your taxes, and don’t forget about retirement.  There is a tendency to open an employer based retirement plan, make some random mutual fund allocations, and forget about it until you change jobs.  This is not a recipe for success.

Here is the simple rule: allocate your 401k based on how many years you have until retirement. 

Without outside professional guidance, which is always recommended where available, the easiest way to take control of your allocations is to follow these basic guidelines which focus on managing risk.  The principle is that stocks provide a higher risk, and potential return, than bonds.  Therefore the longer you have until retirement the more risk you can take with your portfolio.  This type of allocation should then be phased to decrease your risks the closer you are to retirement. Risk tolerance and personal preferences will dictate exactly where your funds should be invested. To demonstrate:

If you have more than 20 years to retirement, allocate 80% into stocks and 20% into bonds; 10 to 19 years to retirement: 60% stocks, 40% bonds; 5 to 9 years to retirement: 80% bonds, 20% stocks;  less than 5 years to retirement: 90% bonds, 10% stocks.

Mutual fund companies offer “age based allocations” in the form of funds cleverly  named things such as “target 2025” but you can’t rely on the fund companies to allocate for you. â€œTarget date” funds offer a range of stocks, bonds and other investments, and shift the mix as you approach retirement. But lately the market chewed up many of these portfolios — even the supposedly cautious ones. You must take some control.

The key is to change your allocation based on your needs: when you near retirement the need is greater for income and stability of principle.  When retirement is far off, the need to grow your investment is greater than the risk of losing principle.  Follow these guidelines to rebalance your retirement account today.

By Jeffrey Strain | MainStreet.com

Many people consider a credit card their emergency fund. Although convenient, it’s rarely a good idea for most people, especially during times of economic turmoil.

There seem to be two reasons that people opt for the credit card as an emergency fund rather than building a stash of cash in a savings account: the time it takes to raise enough money and the paltry interest earned from a bank account. Here are a number of reasons to reconsider.

Better interest rates: Placing emergency fund money in an investment that earns a better return than a savings account usually relies on the false assumption that some securities always rise. Stocks and other investments can be volatile, especially in the short term.

Since by definition an emergency occurs unexpectedly, money invested in other financial vehicles might need to be withdrawn at any time. This includes times when it isn’t financially in your best interest to do so.

Time factor: There is no doubt that it takes time and discipline to build up an emergency fund. In doing so, you may even need to use a credit card as an interim safety net. But, eventually, you will have saved enough money.

Credit card limits can be reduced: Credit card companies, to reduce risks, are lowering spending limits, even on cards whose owners have good credit. The likelihood of a reduction increases as your financial situation worsens. If you lose your job or fail to make payments on some debt obligations, it’s possible your credit card limit will be cut.

Credit cards can be canceled unexpectedly: Even worse, companies can take the reduction in the credit card limit a step further and cancel your agreement altogether. You will still owe any amount you have on the card, but you may no longer use it. In this situation, the entire amount you were counting on in case of an emergency disappears overnight.

High credit card interest rates: When a credit card is used as an emergency fund, not only will the principal need to be paid off, but also the double-digit interest that accrues. That means you will have spent much more than just the emergency itself.

While relying on your credit card entirely for your emergency fund can be financially dangerous, it doesn’t mean it should be abandoned entirely. Many emergencies need to be taken care of on a moment’s notice, and a credit card can be a convenient way to initially pay for the charges. Then the credit card can be paid off with the emergency fund in the bank account before any interest charges are incurred.