Ask the Experts: Kids and Money

Bank of Dad blogger Dan Kadlec joins Jill Schlesinger and Jack Otter to discuss raising financially-savvy kids.

I find it intriguing when he explains that poker is a great financial tool. Sure, mastering poker means learning risk management and statistical analysis but I won't take the risk of using poker to educate my kid about money management. I can't say I will be proud if he turns out to be a professional gambler.

In any case, it is great to get new ideas from other parents. Bringing money into conversations with kids is never the easiest task. Either they are plain not interested or they don't yet appreciate your intentions. And schools aren't doing enough about teaching personal finance.

No matter how difficult it is , parents have to try their best to jumpstart their kids' financial literacy. What have you done to educate your kids? Will you use poker as a tool?

Do You Spend Money Secretly?

Are you one of those who aren't honest with your spouse? I am not talking about adultery here but rather expenses which you have been hiding.

The Wall Street Journal has a beautiful piece asking if you are a secret spender.

It seems many people qualify as secret spenders. According to a recent American Express Spending & Saving Tracker, 27% of respondents have “misrepresented the amount of a purchase” while 30% hide purchases from their partner.

The extent of them keeping spending under wraps is rather funny and incredulous too. Check out what they did:

•burying their purchase in the backyard
•pretending that goods came from Goodwill
•hiding purchases in grocery bags to bring them home
•arranging for items to arrive while their partner was away
•sneaking out and bought an item in the middle of the night

Though I don't go to the extent of asking permission from my wife for my unbudgeted purchases (mostly gadgets), I do let her know about it. This is to encourage honesty from both parties.

She is quite a spender herself on clothes and shoes and if both of us were to conceal our expenses, it will defeat the purpose of having a household budget.

In any case, our checkbook and credit cards are open to each other and she will find out. But to avoid ugly conflicts, I find the right timing to tell her and her mood will depend on the amount which I had spent without her knowledge.

Are you guys a secret spender too? And how do you tell her wife about it?

Can You Invest and Beat The Market Consistently?

It is possible to beat the market. There are people, stock brokers, hedge fund managers, retail investors, or even your neighbor who reported fantastic gains from doing that.

But the real issue is whether one can do it consistently over the long run. When it comes to investing for retirement, you should not look at the market gyrations over a day, a month, a year, or even five years.

If you want to retire with a comfortable amount, you need to be able to beat the market for the entire time you invest, else you are just wasting your money, time and effort. The reason is simple, the financial crisis of 2008 has shown that a few missteps can wipe away all your gains and even make you bankrupt.

The fact is it is not easy to beat the market consistently. 80% of professional mutual fund managers fail to beat their benchmarks, what more an ordinary investor like us who do not have the skill or resources?

The professionals sift through news, analyze charts, research companies, and have networks that we cannot access or afford. Yet most of them could not beat the market. They are after all humans and are susceptible to mistakes.

Bill Miller of Legg Mason Value fund is a good example. He beat the S&P 500 from 1991 to 2005, but lost to the market in 2006 and bombed in 2008. That failure resulted in the S&P 500 outperforming his Legg Mason Value fund from 1991 to present. Thus, a pro with an illustrious track record can also make mistakes and lose his hard-earned reputation.

Since the odds are against amateurs and selecting the few professionals who outperform is difficult, why not just benchmark your investment to the market by investing in a diversified portfolio of index funds?

Can't Go Wrong Investing In Index Funds

Index funds remain the best choice for investors because of their simplicity, low-cost, and reliability. Picking a good index fund only require some understanding of the underlying components, expense ratio, and other hidden cost.

Since index funds don't require active trading, you enjoy lower costs and taxes - which will help improve your investment results.

Index funds may be boring (just buy and forget) but they work and will give you consistent results compared to the market. When you track the market (minus cost), you no longer worry about human mistakes erasing all your past gains.