Credit myths that can cost you

How much credit card debt is “normal”? Do you need to carry a balance to have good credit scores? Is bankruptcy always a bad idea?

I tackle these and other credit questions in this video produced by my new publisher, Hudson Street Press. If you’ve got a couple minutes, take a look.

Stupid is as stupid does?

When I was in college, I borrowed a friend’s wheezing old station wagon to run an errand. I drove it through a deep puddle and when I stepped on the brakes, nothing happened.

So I stepped on the accelerator instead. I drove the car at some speed into a concrete wall, and that was the end of my errand (and the station wagon).

Now, I’m not a stupid person. One of the ways I paid for that college was a National Merit scholarship. But deciding to step on the accelerator when the brake failed was a stupid act.

Some of you aren’t happy with my calling the act of carrying a credit card balance stupid. But in most cases, that’s exactly what it is. Otherwise smart people can do really stupid things with money, and that’s just one of them.

Some of the others, in case you’re interested, include:

• Not contributing to a retirement fund
• Not contributing when there’s a company match (stupid squared)
• Signing up for loans you can’t afford
• Co-signing loans for anyone, unless you’re making the payments
• Taking out refund anticipation loans
• Using a payday lender
• Rolling your debt from your last car loan into your next car loan

You can focus on your reasons/justifications/excuses for doing these things, or you can acknowledge, “Yup, that was dumb”–which could be the first step toward changing your behavior and actually getting smart about money.

Maybe you’re not ready to retire overseas

I’ve been getting a lot of emails, comments and Facebook posts about my MSN column, “Retire overseas on $1,200 a month.” Lots of people are clearly intrigued by the idea of living better for less in a foreign country.

But some folks are posing questions that I’m in no position to answer. I’m not, after all, an expert on expat living–I’m happily ensconced in California, where I plan to stay. So I can’t tell you how efficient the bus system is in Thailand or how to find a housekeeper in Ecuador. And I’m sure not a real estate agent, even though one woman wanted me to send her pictures of apartments in Cuenca so she could see if they were up to her standards.

There are ways to find answers to your questions, of course. There are many Web sites devoted to expatriate living, both in general and in specific countries. Two places to start are LiveandInvestOverseas.com and International Living. To find country-specific communities, type the country name and the word “expat” into a search engine.

You may need to do a lot of searching, poking around, reading and asking questions. If you can’t do that, or you’re easily frustrated when you don’t get immediate results, expat life is probably not for you. In the U.S. we’re used to convenience–what we want, when we want it. That may not be as true in other countries, even developed ones. (My friends from England frequently comment about how easy life is here, compared to home; the U.S. in general is set up to serve the consumer–toll-free customer service lines being the great exception.)

As Kathleen Peddicord puts it in her book, “How to Retire Overseas,” “Making a success of a new life overseas requires energy, commitment and a positive attitude.” I’d add that it also requires curiosity, flexibility and a certain level of tolerance for frustration. If you haven’t got the chops, you’re probably better off staying home.

Are you failing your kids?

I’m reading a fascinating book, “How to Raise Your Adult Children,” by comedy writer Gail Parent and psychotherapist Susan Ende. It’s not quite like any other parenting or money book I’ve ever read, but it makes some great points about how many parents are failing their kids by not expecting more of them.

Some highlights:

• No one is truly independent unless they’re financially independent. Our kids may resist cutting the financial umbilical cord because of fear of the unknown, but our job as parents is to teach them to be independent and then boot ‘em out of the nest.
• The dependent resent those they’re dependent on. Parents who support adult children may believe the kids will be grateful and will love them more, but financially dependency creates “shame and self-doubt” in the offspring.
• Living on their own is part of becoming independent. “We need to expect and prepare our children to live on their own after school,” the authors write. Financial setbacks and unemployment may bring them back to the nest, but their stay shouldn’t be indefinite. There should be a plan for returning them to the wild and they should contribute to the household in the meantime.
• College is a proving ground, for kids and for parents. “By the time a kid leaves college he should have mastered the skills of budgeting, financial planning, delayed gratification, working, spending wisely and saving for a rainy day,” the authors write. “College is a good time to practice those skills. We shouldn’t send money on demand, or bail a kid out.”

It’s still early days with our daughter (she’s only in elementary school), but I can easily understand the temptation is to keep her “close,” safe and dependent long after it’s time for her to start spreading her wings. I know it’s our job as parents to make ourselves obsolete, and teaching her to be financially independent is just one of the ways we’ll do that.

How we encourage our daughter to save

We opened a savings account at a local credit union for our 7-year-old daughter a few weeks ago, and we made her a deal.

She’s already required to save $1 of her $7 allowance each week. Mandatory savings have been part of her allowance since she started getting one four years ago. With the new savings account, we made a bargain that if she saves any more than $1 week, we’ll match it dollar for dollar. So if she saves $2, we’ll kick in an extra buck.

Then, each December, she’ll be allowed to withdraw half of her savings to spend. The other half has to be left alone to grow.

The cool thing is that our credit union pays a 7% return on the first $500 in a savings account. It’s a lot easier to show the value of savings when you have an actual interest payment to show, instead of the three cents a month or so she’d be earning at a regular bank.

We think our arrangement will strike the right balance between teaching delayed gratification and making savings fun. We hope the incentive will encourage her to save more, while giving her access to the funds once a year will reassure her we’re not locking away her savings forever. (Although “hands off” savings helps me sleep better at night, most kids see it as confiscating their money.)

How was saving encouraged in your family, if it was? What are you trying with your kids to make savings a habit?