Banking & Finance 06-03-2015

BANKING & FINANCE An Anton Media Group Special June 3 - 9, 2015

The Nag Factor

How kids influence their parents to spend nearly $3 billion

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BANKING & FINANCE • JUNE 3 - 9, 2015

Is Your Tween Nagging You To (Financial) Death?

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BY JILL NOSSA

JNOSSA@ANTONMEDIAGROUP.COM

It’s no secret that raising kids is expensive, a reality that parents are overwhelmed with even before their first child is born. New parents are bombarded with the immediate expenses of furniture to set up the nursery, clothing, diapers, strollers and an endless amount of baby gear.

And it’s a given that as a child grows, so do the expenses: more food to fill that growing body (and more clothing to cover it); various classes, lessons and clubs and saving for the college fund. But beyond meeting those basic needs, there is another factor at play that increases a parent’s finances significantly: the nag factor.

This phenomenon, also known as “Pester Power,” is defined as “the tendency of children, who are bombarded with marketers’ messages, to unrelentingly request advertised items.” And the pestering has a powerful influence on parents’ buying habits.

In the U.S., there are about 20 million “tweens” or boys and girls ages 8 to 12, and according to MarketingSherpa, the buying power of the tween market is estimated at more than $260 billion annually. It’s the first demographic that takes the online world completely for granted. This age group spends more time on the Internet using their mobile devices, subjecting them to a wide array of marketing messages; and while they are also shopping online, between 65 to 70 percent of tween spending is from parental contributions.

“Tweens can nag relentlessly, in a lot of different ways,” said Teresa Grella-Hillebrand, director of Hofstra University’s Counseling and Mental Health Professions Clinic and a marriage and family therapist.

Parents give in to a child’s demands for video games, music, movies, books, videos/DVDs, food, clothing and other items partly out of social pressures and partly because they get tired of saying no.

“Parents get worn down and feel guilty, so they give in,” GrellaHillebrand said. “Parents don’t want to feel that guilt and it’s also easier to avoid conflict.”

What’s particularly troublesome for parents is the fact that marketers are well aware of the spending power and influence of this age group and do extensive research to find ways to tap into the market—and squeeze family budgets even further.

“Marketing to tweens is not like marketing to any other segment,” said Doug Betensky, CEO of Upside

(Photo by Lena Vasiljeva) Business Consultants in Roslyn.

“Reaching them is the most important thing, as they do not read post cards, get direct mail like adults do and they are not out and about without their parents.

Therefore, you are marketing not just to the tween, but also to the parents.”

As a result, marketers are quickly finding ways to advertise to them through mobile devices.

“The tweens must be reached on their own terms in the channels they use—therefore, technology, smartphones, gaming devices, etc.—all play a significant role,” said Betensky.

“They are highly influenced by fashion, technology and whatever is ‘in’ and cool at the time.”

The mix of this stage of adolescence and the onslaught of targeted marketing means a lot of arguments—and a lot of spending for parents.

“The biggest mistake parents make

is to say no when they really mean yes,” said Grella-Hillebrand. “Kids then learn that no doesn’t really mean no, and it just perpetuates the nagging.”

Grella-Hillebrand said part of the reason for incessant nagging is due to the way kids this age are wired, from a physiological standpoint, which makes it harder for them to practice restraint.

“In early adolescence, children are starting to assert themselves and figure out who they are as they navigate the world,” she said. “Part of who they are is defined by what they have at this age, as well as what their peers have.”

So, she said, parents have to juggle between what they can afford and what they value, as a family, in order to decide what to give in to and when to stand their ground. She said this can be particularly difficult in more affluent areas like Long Island where there are more social pressures, especially when both parents work and don’t always spend as much time as they would like to with their kids. But, she stresses that it is very important for parents to hold their ground, or the cycle will continue.

“Saying ‘yes’ or ‘no’ as a reflex is less productive for a family,” she said.

“Instead of saying ‘no’ at the outset, say, ‘Let me think about that request’ and then have a conversation about it. If you agree to the request, explain why and tell them what you expect from them, as they are learning responsibility and responsibility goes with privilege.”

According to Grella-Hillebrand, who has three teenage daughters, part of the problem with tween nagging

and consequent spending is that parenting today is different than it was two to three decades ago.

“Over the past 25 years, we’ve changed the way we look at parenting,” she said. “We value children more and put more focus on them; we want them to be nurtured, protected and we want to provide for them as best we can to help them grow. Then along with that we have the advances in technology and the price tags attached.”

She said there has been a cultural shift, especially in middle to upper-middle class areas, where there are more social pressures to provide everything a child might need to succeed—and when you add in the wants, the lines get blurry, making it easier to give in to the nagging.

“As parents, we need to be more thoughtful about our responses,” she said. “Think about your priorities and if you mean no, hold to it. Don’t be afraid to say no. But if you can’t hold the line, take some time and wait to respond.”

Alex Gallego of Gallego Financial Group of Raymond James in Oyster Bay said the best way to avoid financial stress is to focus on “forward planning” and to start early.

“You have to think about the end objective, which is raising a child to become emotionally and financially healthy,” Gallego said. “They have to understand the value of money, that it is not a limitless ATM machine and you have to teach responsibility.”

see TWEEN on page 6B

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As the proportion of workers with pensions continues to decline, more Americans are turning to their Individual Retirement Accounts (IRAs) and other qualified retirement assets as their primary source of retirement income.

There are many benefits to putting money away in an IRA. IRAs grow income tax free over an owner’s lifetime. Only when the money is distributed is it subject to income tax, often at a point in the owner’s life when she is retired and is in a lower income tax bracket. If the owner dies with assets still remaining in her IRA, she can leave the IRA to a beneficiary. Depending on whether the beneficiary is a surviving spouse, a child or a trust, there are different required distribution time periods and different applicable taxes.

When an IRA is inherited by an individual, the beneficiary of an inherited IRA is not allowed to make additional contributions.

Distributions must begin immediately—they cannot be delayed until the beneficiary reaches retirement age, like they can be for distributions from a personal IRA. The beneficiary can take a distribution of the entire account without the typical preretirement age penalty. These distributions are taxed based upon the beneficiary’s current tax bracket.

IRAs and other qualified retirement assets enjoy creditor protection. If the owner is sued or files for bankruptcy, those assets are protected. However, in a recent Supreme Court of the United States case, Clark v. Rameker, the court held that an “inherited IRA” is not a protected retirement fund under federal law.

An inherited IRA is not considered a retirement asset for the person that inherits it. An IRA beneficiary trust would protect the inherited IRA. A properly drafted IRA beneficiary trust, which would be the beneficiary of any qualified retirement accounts, would shield the assets and still allow a lifetime payout based on the oldest beneficiary of the trust’s life expectancy.

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BANKING & FINANCE • JUNE 3 - 9, 2015

Mortgage Foreclosure Legal Consultation Clinics

(Photo by Jason Meredith)

TWEEN from page 3B

He said to start the process early, parents can open a savings account or an UTMA and include the child in what is transpiring. Another aspect he said is key is to set a contractual agreement with the child so that they know what to do every week in order to earn money.

“Chores should be religious, systematic and consistent,” he said.

According to Gallego, having a binding agreement teaches a child responsibility and accountability and they start to see the tie-in between working hard, meeting obligations and earning money; and they begin to feel good about themselves.

“It’s important to help develop a sense of self-worth,” he said. “And

it’s not coming from exteriors, but by their own positive actions.”

Gallego, who has spent 20 years in the business of financial planning, also has three kids, ages 15, 16 and 18. He has helped keep them accountable for their earnings by use of contracts—the earliest signatures written with crayons—and also makes sure they have summer jobs every year. As a result, he said they have become healthy, well-adjusted children and there’s no stress when it comes to finances.

“It’s very important to hit all the paradigms of self-development,” said Gallego. “If we miss one, we have a real spoiled child on our hands.”

The Nassau County Bar Association (NCBA) is dedicated to helping Nassau residents who are struggling with the prospect of losing their homes in mortgage foreclosure. Superstorm Sandy only exacerbated the situation.

Fortunately, help continues to be available at the NCBA’s Free Mortgage Foreclosure/Sandy Recovery Legal Consultation Clinics. The June clinics will be held on Monday, June 8 and Monday, June 29, 3 to 6 p.m. at the Nassau County Bar Association, located at the corner of 15th and West streets in Mineola, two blocks south of the bus and train stations.

NCBA’s clinics allow homeowners concerned about foreclosure matters or who are already in the foreclosure process involving property in Nassau County, to meet one-on-one with a volunteer attorney for free legal guidance and referrals to other free resources, such as mortgage modifications, loan restructuring, bankruptcy, financial planning assistance, services for lower income households and emotional support. There are no income restrictions to attend the clinics. Since 2009, NCBA has held more than 100 clinics assisting more than 8,500 families in distress.

In addition to the volunteer foreclosure attorneys, homeowners may be directed to bankruptcy

attorneys as well as other clinic participants, including Nassau/Suffolk Law Services, NY Legal Assistance Group, Pro Bono Program of the Financial Planning Association as well as HUD-certified housing counselors from Community Development Corporation of Long Island, Hispanic Brotherhood of Rockville Centre and American Debt Resources.

Attorneys also answer Sandy victims’ questions regarding homeowner, flood, property damage and automobile insurance claims; FEMA, debt deferral, consumer protection and landlord-tenant issues; as well as providing additional assistance from the Visiting Nurse Services of New York Disaster Distress Response Program, FEGS Counseling Services and Architects for Humanity.

Bilingual attorneys fluent in Spanish are on site, and attorneys bilingual in other languages, including Russian, Haitian Creole, Korean, Chinese, Hindi and American Sign Language, may be requested when making reservations.

Reservations can be requested by calling 516-747-4070. Attendees are asked to bring their mortgage documents or other important papers and correspondence to the clinic.

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Your Credit Score: Updates You Should Know

BY JASON ALDERMAN

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Credit scoring has evolved over the last three decades and last year, FICO made one more important change.

Borrowers who have struggled with medical debt and those with a limited credit history might see better FICO numbers in the future. Even if these situations don’t apply to you, understanding how credit scoring is changing can help you better manage your credit over time.

FICO Score 9, rolled out last fall, is described as a more “nuanced” version of the original FICO Score that the leading credit scoring company introduced in 1989. It is offered by three major credit bureaus: Equifax (www.equifax.com), Experian (www. experian.com) and TransUnion. (www.transunion.com). It now bypasses collection agency accounts and weighs medical debt differently than nonmedical debt on a person’s credit record. Borrowers with a median score of 711 whose only negative credit data comes from medical collections will see their credit score go up 25 points under the new system.

As for consumers with limited credit histories—what the industry

calls “thin files”—FICO says the new system will better determine the ability of someone in that situation to repay a debt.

What doesn’t FICO 9 address? At this point, the latest credit-scoring model really doesn’t loosen or change requirements for mortgage and refinancing opportunities. Even so, there are many things ordinary borrowers can do to improve their credit scores and overall financial health over time.

The first step is for borrowers to review each of their credit reports once a year. Credit reports and credit scores are two different things. Consider credit scores are a three-digit summary of creditworthiness; credit reports are the detailed record of a borrower’s credit history. Consumers can view each of their credit reports from Equifax, Experian and TransUnion

scores are compiled. FICO uses five key ingredients: • Payment history (35 percent).

• Amounts owed (30 percent).

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• New credit (10 percent).

• Types of credit used (10 percent).

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Open Access Program, which lets Bottom line: Smart credit managecurrent customers see the exact credit ment starts with an understanding of scoring data applied to them at no one’s credit reports and credit scores. charge. FICO’s site doesn’t offer the names of participating lenders, but Jason Alderman directs Visa’s finana customer should ask their lender if cial education programs, including they are offering free scores through Practical Money Skills For Life that program.

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Track Your Spending With An App

BY REID ABEDEEN

SPECIALSECTIONS@ANTONMEDIAGROUP.COM

On the heels of the close of a tax season, you may have found yourself with an unexpected surplus in the form of a tax refund or an unexpected expenditure in the form of a tax-withholding shortfall. In either case, money management should remain at the forefront of your mind.

While everyone should have a long-term plan for their investments, yours will do you no good if you aren’t also watching your money on a day-to-day basis. You should have a monthly budget, spending categories with soft and hard caps and a system to keep track of it all and rein in your spending. If you don’t have responsible spending habits, you don’t have responsible saving habits; it’s that simple.

There are a multitude of technologies that can help you pay attention to your spending budgets. These include money-management apps on your mobile phone or banking websites that let you categorize your expenditures for easier totaling, among other things.

For most of us, keeping a close eye on our spending is all it takes to make more responsible money decisions. When you have to notice every dollar as it comes in and goes out, the awareness of your accounts creates its own incentive to spend carefully. It’s the same principle behind calorie counting: Even if you don’t adopt any special diet, having all the information in front of you—and the awareness of how many minutes of exercise it takes to balance out that one candy bar—will tug you gently in the direction of prudent decision-making.

Screen shots of the EveryDollar app for iPhones

Here Are A Few Favorite Daily MoneyManagement Hacks EveryDollar Financial guru Dave Ramsey has plugged this iPhone app (there is not yet an Android version). It’s simple, yet elegant and effective.

After installing it, you create a monthly budget on the app’s corresponding website. You link it to your various credit, debit, savings and investment accounts, and the app tracks your expenditures proportionate to your budgets. When you spend money in a category, the app shows you how much you have left to spend for the month.

Screen shots of the Mint app for iPhones For one-time or annual expenditures, EveryDollar has you create a Fund that’s paid into every month and then zeroes out when the expenditure is made.

The basic version of EveryDollar is free. If you get the premium version of the app, you can drag and drop transactions from your bank to one of your budgets, making it easier to ensure that every expenditure is properly accounted for.

Mint Another budgeting and moneymanagement app, Mint (available on iOS and Android) has the same basic functionality. You create monthly budgets in several different areas, taking up a portion of your monthly projected income. You can then set goals with the remaining funds.

An example goal might be “Pay off credit card” or “Save for vacation.”

Most of the differences between this app and EveryDollar are cosmetic.

Assigning categories to credit or debit card transactions in Mint is a little more tedious. Instead of dragging and dropping from transaction to budget, you have to scroll down a submenu, for example.

Then again, this is a premium feature on EveryDollar, so it comes at a price of $99 yearly. Mint is free for all users, although the app does offer “advice” in the form of advertisements for credit cards and other financial solutions.

These are customized to your spending and saving habits, which could make some users leery of just how much financial data they are sharing with the manufacturer.

You have to set up each of your monthly budgets yourself, but there is a dropdown menu’s worth of spending options to choose from, so this isn’t too onerous.

Mint has additional features such as spending reports, divided by category (into a pie chart) or by month (in a bar graph). If one of the spending categories looks suspicious, you can easily navigate to the list of transactions to make sure they all belong there, and have a clear sense of where your money is going.

Even if you don’t change a penny of your spending habits, being able to view and justify every dollar will have you feeling good about your decisions instead of wondering why your wallet is always empty.

Mint’s main screen is a snapshot that shows every connected account balance and a summary of those accounts. (You can get this in EveryDollar as well, but it requires paying for the Plus version.)

One-time or annual expenditures are also a little trickier to manage on Mint, but there are workarounds that can make them feasible. At free, it’s a bargain at twice the price.

Know Thyself and Save Whatever money-management app you decide to use, the automatic transaction tracking will make it easy to keep track of your budget and find corners to cut. When you do, make sure to turn those extra discretionary funds into progressive investments, to make your retirement richer—and possibly sooner.

Reid Abedeen is a partner at Safeguard Investment Advisory Group, LLC (www.safeguard investment.com)

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BANKING & FINANCE • JUNE 3 - 9, 2015

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