August 18, 2019

Give Your Teenager a Credit Card? Some Financial Experts Say Yes

Parents should consider moving on to a credit card only after the teenager demonstrates responsible management of cash-based accounts, said Paul Golden, spokesman for the National Endowment for Financial Education and the father of two teenagers. “I believe in using a stair-step process,” he said.

Here are some questions and answers about credit cards for teenagers:

How can I tell if my teenager is ready for a credit card?

If your child asks about credit or seems curious when you use a credit card, that’s a good time to start a conversation, Mr. Golden said. Sara Rathner, a credit card expert at the financial website NerdWallet, said parents should consider how teenagers behaved when they got cash. Can they keep track of it? Do they spend it all at once? Losing money or making impulsive purchases may suggest it’s best to wait awhile before introducing credit. “You know your teen better than anyone,” she said.

Can I set a lower spending limit on a credit card I give my teenager?

Possibly. Most people don’t realize that they can have spending limits lowered on their credit cards simply by asking their bank, Ms. Fisher, the financial planner, said.

Some banks allow you to set very low limits for cards issued to authorized users. That way, you don’t have to expose your entire $10,000 line of credit to a teenager who may be excited about, say, “in app” purchases while playing a favorite online video game. American Express, for one, allows borrowers to set limits as low as $200 for cards issued to authorized users.

When should young adults make the transition to their own credit card accounts?

Parents should talk with their child in advance about when the financial apron strings will be cut, said Paul Siegfried, senior vice president and credit card business leader at the credit bureau TransUnion. “Have an exit strategy,” he said. Each family will have its own approach, he said, but a reasonable deadline may be that “authorized user” status will be revoked three to six months after the child graduates from college or gets a full-time job.

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What’s Left After a Family Business Is Sold?

“You’re not going to earn double digits across a portfolio the way you could with owning a business,” he said.

Mr. Brooks was one of 10 family members who owned the majority of Malt-O-Meal. He said he expected his children to withdraw no more than 1 percent a year of his share — still a large amount of money — so that the assets could continue to grow the way his family’s business did. But advisers say this strategy can be problematic for future generations.

“It’s really hard to have one generation exert these from-the-grave controls that will govern possibly unborn generations to come,” said Covie Edwards-Pitt, chief wealth strategist at Ballentine Partners. “It’s somewhat impractical.”

An approach like this, she said, also misses the importance of talking about family values. “People tend to think the answer is in the money when usually it’s not,” she said.

But agreeing on family values takes time. William Deary, who quit his job in publishing to help his wife, Cherilyn, start a home health care company, said they had made sure that their child, Kylyn, saw what they were doing.

Over 23 years, the family created Great Lakes Caring Home Health and Hospice, a company with more than 9,000 employees around the Midwest. Mr. Deary said his family received three private equity investments over a decade, allowing them to diversify their wealth gradually by the time they ceded control of the company in 2017.

But years before the sale, the family had been formulating a plan for its wealth that focused on family values but also held the members accountable. A family scorecard, for example, tracks their progress on 40 items that the family has deemed important, including working hard, investing wisely and the protecting its legacy.

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More Private Colleges Are Cutting Tuition, but Don’t Expect to Pay Less

“The motivation for most discounting is survival,” said Jim Galbally, a senior consultant at AAL, a higher education consulting firm. “They are using the discount rate as a way to increase enrollment.”

Mr. Galbally added that tuition accounted for more than 80 percent of the revenue at most colleges, “so every student really matters.”

Whether reducing tuition has its intended effect is difficult to answer, according to a recent study of two dozen private colleges. Consultants say it depends on the institution’s goals and how the plan is executed — simply coming up with a more attractive sticker price isn’t enough.

The tuition cut at Albright College in Pennsylvania captured the attention of Sabrina Malone, a mother of six in Dover, Del., even if she did realize, after running some numbers, that it was probably a marketing tactic.

With or without the reduction, she said, “it was still going to cost us the same amount of money.”

After the reset at Mills, Mx. Anderson’s tuition dropped by nearly 36 percent for the fall 2018 semester, to about $14,000, but scholarships and grants dropped by more than half, to about $6,000. When various fees and other details are taken into account, in the end Mx. Anderson’s total costs didn’t change significantly.

A total of 91 colleges reset their tuition from 1987 through 2018, according to Mr. Kantrowitz’s analysis. That’s just a tiny fraction of the roughly 4,300 degree-granting institutions, according to the National Center for Education Statistics, but more are expected to join their ranks.

Though it’s hard to predict how many will move ahead, Mr. Kantrowitz’s analysis found that an additional 273 four-year, nonprofit colleges shared characteristics with schools that have reduced prices. They’re often small, not highly selective and dependent on tuition revenue.

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To Graduate, File a Fafsa, More High School Seniors Are Told

“We made the Fafsa an opt-out situation,” he said, “rather than opt-in.”

Student advocates say the move toward a Fafsa requirement is generally helpful, as long as schools provide training and support for high school counselors, and help for students and families in tackling the form.

The ability to opt out is also crucial so the policies don’t become a barrier to graduation, said MorraLee Keller, director of technical assistance with the college access network. A student who, for instance, plans to join the military immediately upon graduation should not have to fill out the Fafsa, she said.

The new rules in Texas and Illinois will allow students to request exemptions or waivers. The Illinois policy is set to take effect in the 2020-21 school year, while Texas’ will begin a year later.

“It is a very well-intentioned attempt to close a gap we see,” Ms. Thompson said.

Overall Fafsa filing rates, taking into account students who are already in college as well as high school students, have risen in recent years, according to the college access network. But a slight drop in the filing rate for high school seniors in the class of 2019 was “discouraging,” said Bill DeBaun, director of data and evaluation at the access network. It may be, he said, that a strong economy is moving more students to go directly into the work force instead of going to college or pursuing technical degrees.

In recent years, the federal government has taken steps to simplify the Fafsa, and to make it easier to complete. The form may now be filled out on phones, using a mobile app or a mobile-friendly website. And the Fafsa now uses information from older tax returns so families’ financial information is more readily available when they tackle the form.

Many students and families use the Internal Revenue Service’s online data retrieval tool to quickly transfer financial information from their federal tax returns onto the Fafsa form. But the recent federal tax overhaul created new schedules that the tool does not yet recognize, according to a letter sent to the Education Department and copied to the I.R.S. late last week by Senator Maggie Hassan, eight other Democratic senators and Senator Bernie Sanders, an independent who is seeking the Democratic presidential nomination.

The senators asked for assurance that any mistakes would not subject students to a more “arduous” process that might discourage them from seeking financial help.

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4 Reasons Parents Don’t Discuss Money (and Why They Should)

“It was so overwhelming that I nearly died,” she said. “At the same time, my older children were heading into the work force, and I thought we weren’t giving them the right financial skills.”

Since then, she and her husband have held annual meetings with their children, whose ages now range from 18 to 31. Their goal has been not, as Melissa describes it, to suddenly shine a bright light in their children’s eyes but to gradually reveal information, like a dimmer switch slowly lighting a room.

They began by outlining their own feelings about money and where it could help and hurt.

“It’s such a valuable process to communicate and have respect for all members of your family,” Melissa said. “That’s really been a surprise to me; if you can give them skills, you’re guiding them and they’re learning.”

You Do Not Come From Generational Wealth

Families that inherit wealth often continue to be wealthy because of the conversations they have. It’s what they have done for generations.

William T. LaFond, head of family wealth at Wilmington Trust, which was founded in 1903 to manage the du Pont family’s wealth, said many of the firms’ clients had preserved their wealth past the third generation because they talked early and often about it with their children.

These families, he said, follow a three-step process: Educate their children about finances and wealth, communicate the family’s values, and hire good advisers.

Those who do not succeed in passing money along successfully often have silence to blame.

“The generation that receives the money has no education and no skills and wakes up like a lottery winner,” Mr. LaFond said. “You don’t want your kids to be lottery winners.”

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Want to Own a Warhol? Now, You Can Buy a Piece of One

But the assets that are being securitized come with an obligation from the borrower to pay money back, and they offer a stream of income for a fixed period. Art, cars and other luxury items do not offer those guarantees. The actual objects stay in galleries, showrooms or, with most of the cars that Rally has, at two locations where a caretaker maintains them.

A similar model is used in real estate, in which the use of a property like a condo or a house is divided into fixed amounts and sold to investors, which I wrote about recently. The risk with fractional ownership is that owners struggle to sell their shares.

There is an opportunity for a return. The sponsors of these deals seek to eventually sell the assets to private collectors. Rally sold a Ferrari F430, which was on the platform for six months, to a private collector, earning a 17 percent profit.

But like many investments, proponents put this into the category of future of finance, which is a squishy term at best.

Scott Lynn, founder and chief executive at Masterworks, which is offering shares in a Marilyn Monroe painting by Andy Warhol, points to Lending Club, a pioneer in this investment model. Along with other peer-to-peer groups, Lending Club makes high-interest, short-term loans to individuals with money from other retail investors.

Others paint the securitization of these assets as an equity investment. “Each vehicle is its own entity, whether we issue 2,000 or 5,000 shares,” said Chris Bruno, chief executive of Rally Rd. “The barrier to entry is one share, from $8 to $200. Each car is independent of the other.”

The potential for appreciation of these private assets and their lack of correlation with the stock market has attracted some investors, while the tangible nature of art and cars versus stocks and bonds has brought in others.

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What to Know When Choosing Cremation

Here are some questions and answers about cremation:

What does the price of a cremation include?

A basic cremation — called “direct” cremation by funeral homes — generally includes pickup and transportation of the body, filing necessary paperwork, the actual cremation and the return of the ashes to the family, said Joshua Slocum, executive director with the Funeral Consumers Alliance, a nonprofit advocacy group.

Some funeral homes have their own cremation equipment, but others use outside contractors. If an outside provider is used, Mr. Slocum said, consumers should be careful to review the fees to be sure they are not charged twice for similar services.

Rates vary by location, he said, but a reasonable rate for a direct cremation is $800 to $1,200.

Don’t be pressured to buy a coffin. There’s no need for one if someone is being cremated, AARP advises.

The Federal Trade Commission says that no state or local law requires the use of a coffin for cremation and that the funeral home must inform you that alternative containers — such as those made of unfinished wood or even cardboard — are available.

Must I hold a memorial service before or after a cremation?

No. Add-ons like visiting hours or a memorial service are entirely up to you. “You can do everything, or nothing, before the cremation,” Mr. Slocum said. Families sometimes organize their own informal memorial gatherings after the cremation without involving a funeral home.

Are cremation prices available online?

The federal Funeral Rule requires funeral homes to provide prices for all services, including cremation, upon request by telephone or in person. But the rule, which took effect in 1984, doesn’t address online pricing. Consumer advocates are pushing for the rule to be updated to require funeral homes to post their price lists online.

The F.T.C., which enforces the rule, was scheduled to review it this year, but whether that will happen is unclear. Earlier this year, the commission said that the 10-year review period it uses was not mandatory, and the commission could change timelines if it chooses.

A commission spokesman didn’t respond to a request for an update on the review’s status.

One state, California, requires funeral homes with websites to include pricing information online, or to list services and note that prices are available upon request.

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Investors Are Usually Wrong. I’m One of Them.

“I was shocked,” Mr. Harvey said. “I never would have expected that.”

Variable annuities generally impose “surrender charges” that investors must pay if they want to sell their funds before a set period of, say, 10 years. These charges and various other fees have made variable annuities the subject of repeated warnings by experts, including those at the Securities and Exchange Commission.

“Variable annuities are not suitable for meeting short-term goals because substantial taxes and insurance company charges may apply if you withdraw your money early,” the commission says. “Variable annuities also involve investment risks, just as mutual funds do.”

Yet despite the extra fees and penalties — perversely, it seems, because of them — investors in variable annuities outperformed those in mutual funds over 12 months, as well as over three, five, 10, 15 and 19 years, Dalbar found.

The secret to the annuities’ success appears to be the surrender charges, Mr. Harvey said. Unless you really need the money urgently, a charge of, say, 7 percent, is likely to deter you from going ahead with a sale during a market downturn, he said. Assuming your investment is diversified, sticking with it over a long period may be a better strategy.

This isn’t an endorsement of variable annuities. Because of the fees and constraints, I don’t plan on owning one. But the discipline they impose is worth having.

In a word, I’d call it humility. Clearly, it’s time to recognize that I’m unable to predict the future.

Anticipating rough times this year, for example, I lightened the risk in my portfolio, shifting some of my stock and bond holdings into stable money market funds.

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D.I.Y. Private Equity Is Luring Small Investors

These amateur investor groups are another iteration of investment clubs that have popped up around the country for decades. Most of those clubs have sought to channel the collective wisdom of their members to do something that professional investors struggle to do full time.

When putting money into public equities, investors have an out if things go wrong: They sell their shares on the stock market.

Private equity, by design, provides no such escape hatch. An investment in a start-up means investors get their money back only if the company goes public or is bought by someone else.

So do these do-it-yourself private equity investors stand a chance? They might, though a lot of work will go into it.

“I think all of these investors get that if it was easy, everyone else would be doing it,” said Alfred W. Coleman, a corporate partner at Saul Ewing Arnstein Lehr in Minneapolis, who helped set up the funds created by Dr. Wright and Mr. Prophete. “But a good portion of what was driving this was access and control. They didn’t have access to these pools and investments, so they had to create it on their own.”

The key to success varies.

It starts with how they hear about deals, known as sourcing. Mr. Glaser said Wilmington Trust saw a lot of deals, given the size of its investment capital — $92 billion. But of the hundreds it looks at in any given year, the firm invests in about three. It puts $50 million to $100 million in each one.

Palm Drive Capital, a venture capital firm in New York, has invested in six unicorns, or companies with valuations of a billion dollars or more, since its founding in 2014, said Seamon Chan, managing partner at the firm. Palm Drive sometimes looks at hundreds of deals a week, all in the software industry, and passes on most of them, he said.

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Mellody Hobson of Ariel Investments: ‘Capitalism Needs to Work for Everyone’

We were kids, but we were put through some pretty horrific exercises. We had a teacher once in seventh grade who ripped out pages of the phone book and told us to memorize the name, address and phone numbers of one column. It was literally to teach our brains how to find mnemonics to memorize, and it ended up being a great gift.

In eighth grade, one of our teachers gave us all rubber bands. She said, “You have until tomorrow to come up with an alternative use for this.” We were all stumped. The next day, we were just going to go in and say we couldn’t figure it out. And I’m sitting at my desk, and I start rubbing the rubber band against my paper, and I realize it’s an eraser.

What was your first job?

I worked in a storeroom that had no windows of a very fancy store in Chicago. I put the tags on the clothes. I honestly loved the job. I loved looking at the clothes. I loved the idea that I could make money. I told them I was 16, but I wasn’t. I was 15. I went there with bells on every single day. I would check the merchandise in so fast that I had nothing to do for the rest of the day, so they said to me, “Well, go help the bookkeeper.”

Then they asked me to start helping close out the register, because I was the one who could get it to balance. Once I was downstairs closing out a register, and a woman came in and she didn’t have anyone to help her, and I sold her thousands of dollars’ worth of clothes. I just thought it was the most amazing thing.

It was my first real example of making myself indispensable, which was one of the things my mom told me. She was like, “Just make it so you’re so good, you can’t get fired.”

What did you study in college?

I was in the Woodrow Wilson School of international relations and public policy at Princeton. You have to apply to get in, and I did not originally get in. I lobbied really hard and called many people. I just would not take no for an answer.

I spent a lot of my years in the Woodrow Wilson School studying systems that really oppress people. I wrote my senior thesis on South Africa, and specifically on how children ultimately led to the end of apartheid because of their uprisings.

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