Are You Leaving the Same Amount to All of Your Beneficiaries?

Father Holding Daughter's Hand
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One-third of all parents with wills have divided their estates unequally among their children, according to the National Bureau of Economic Research (NBER). The study found bequests in complex families – families with stepchildren or estranged children – are more likely to be unequal. The Squared Away Blog reported:

“…parents with stepchildren are considerably less likely to include all of their children than are parents who have only biological offspring. This is more true for women with stepchildren than for men with stepchildren. Divorced and widowed parents are even less likely to divide their assets evenly if they have stepchildren.”

The blog reported there were some mitigating factors. Wealthier parents were more likely to include stepchildren and children with whom they had little or no contact during their lifetimes than less wealthy parents. However, parents who suffered from poor health were less likely to divide their estates equally. Bequests sometimes were used as an incentive to provide long-term care.

Since children may interpret unequal inheritance as an expression of unequal love, why do parents play favorites? Researchers at Ohio State University delved into the question in 2003 and reported altruism (equalizing income differences among children), exchange (bequests in return for services), and/or evolution (bequests to biological children rather than adopted or stepchildren) played a role when distribution of assets was uneven.

Setting an Example for Future Generations

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Cade Martin, Dawn Arlotta, USCDCP

Do your children or grandchildren spend summers mowing lawns, repairing computers, or selling movie tickets? Perhaps, they have part-time jobs during the school year, bagging groceries, or working in a local shop. No matter the type of work done, if a young person has earned income, he or she can save in a Roth IRA.

While saving for retirement probably isn’t even a blip on the radar for most young people, their older relatives are aware of the challenges related to saving for and generating income in retirement. Many also understand the importance of starting early – a task that has been made easier by custodial Roth IRAs. It is now possible to establish Roth IRAs for children who are younger than age 18, as long as they have earned income.

Communicating the importance of saving for retirement (and other goals) to younger family members is important, especially when the 2015 Employee Benefit Research Institute’s Retirement Confidence Survey found about 39 percent of working Americans are not currently saving for retirement. Since actions often speak louder than words, a Time.com reporter offered this suggestion:

“Most kids will not have the ability or discipline to fund the account through their earnings. But adults can reward their hard work by contributing on their behalf. This demonstrates the value of saving…The additional saving is all the more important for young people, who will have fewer sources of guaranteed lifetime income in their retirement years.”

Money Chimp’s compounding calculator suggests a one-time $5,000 investment, earning 6 percent a year on average, would be worth more than $178,000 in 60 years. That could become tax-free income for a child or grandchild’s retirement if the investment was in a Roth IRA. Please keep in mind, this is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical 6% return used is not guaranteed and does not reflect the deduction of fees and charges inherent to investing.

Of course, one attractive aspect of a Roth IRA account is the assets also can be used, penalty-free, for college tuition or the purchase of a first home, as long as certain requirements are met (including the account having been open for at least five years). About the Roth IRA – The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax.

7 Things to Teach Your Kids in Kindergarten if You Want Them to Grow Up to be Rich

The earlier you start teaching money basics, the better.
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Only 17 states in the US require that students at public high schools take a personal finance class before they graduate.

“At the end of the day, kids are not being taught the fundamentals in school. As much as we think or hope they are, it’s not happening,” says Gregg Murset, certified financial planner and founder of MyJobChart.com, a free tool that teaches kids about money.

That means parents are the ones that have to assume responsibility — and the earlier you start teaching money basics, the better.

“Even if they have personal finance being taught in high school, that’s too late,” explains Murset. “They’re quasi-set in their ways by the time they’re 17, so you really have to start a lot earlier.”

Every kid learns at a different pace, but you can start laying the groundwork as early as five years old, Murset says.

Here are seven money lessons you can introduce to your kids as early as kindergarten. The more interactive and fun you can make it, the more they’ll absorb, so we’ve also included strategies to help convey the basics suggested by Murset and Peggy Mangot, CEO of SparkGift, a new platform that helps parents teach kids to start investing early.

Of course, we can’t guarantee they’ll grow to be millionaires, but if you can hammer home these concepts from a young age, they’ll be ahead of the curve.

1. The concept of earning.

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The earlier parents establish the concept of earning, the better, says Murset. Kids need to understand where money comes from, and that it requires a job and work ethic to get money in your wallet.

Strategy: Introduce the concept of an allowance, and give them specific jobs around the house that will earn them a bit of money each week.

Note that giving an allowance the wrong way — not having discussions about how to use the money and simply handing over a certain amount each week — can do more harm than good. Check out the most effective way to give your kids an allowance so they’re actually learning about money.

Another option is to encourage them to participate in a bake sale or lemonade stand — something that requires them to put in work in exchange for earnings.

2. What it means to save, share, and spend.

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Once your kids understand the concept of earning money, teach them the three things they can do with their earnings: save, share, and spend.

“If you can relay the concept of earning and then splitting it up — I save for the future, I share with charities or causes I care about, and I spend on things I want or need — that’s powerful stuff,” says Murset. “It’s really personal finance 101.”

Strategy: Once your kids have earned money from a bake sale or having completed jobs around the house, explain that in addition to being able to spend it, they need to save and share some.

“Open a savings account for your child,” recommends Mangot. “Even a small amount ($20) is a great start. The key is to get in the practice of saving for the long-term.” Then, make it a habit, she says: “Make it a monthly practice with your child to make additional deposits to their savings account so they can watch it grow.”

As for sharing, help them find a charity or cause that interests them and pick a day each month to donate.

When it comes to spending, take them to the store with you so they can see what $5 or $10 can buy — let them know that they don’t have to spend it right away and that waiting will mean more savings in the future, but let them make the final decision.

3. How debit and credit cards work.

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The concept of debit and credit cards are more difficult than ever for kids to grasp, explains Murset: “We used to be able to pull out our purse or wallet and there would be a wad of money. Now, it’s always a card or phone — something invisible — which makes it even more difficult to teach kids about money.”

It’s important for them to understand that the swipe of a card means money is being removed from an account, Murset says.

Strategy: When you’re checking out at the store with your debit or credit card, let them help you enter your PIN number and use it as a chance to explain how the card works. You can also show them the different cards you have and explain how using one card — the debit — will take money out from an account right away, while the credit card will send a bill at the end of the month.

4. How coupons work.

Introducing the concept of coupons will help to ingrain conscious spending habits, which will pay off in the long run as they get older and start spending their own money.

Strategy: Have your kids cut coupons out with you and then use them together at the grocery store or pharmacy. To help them understand that you saved money, you can show them, or let them keep a portion of, the exact dollar amount the coupon saved.

5. What it means to match contributions.

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You can introduce the concept of matching from a young age, says Murset. “If you get that into a kid’s brain really early — that matching works and grows their money — what do you think they’re going to do the first time they get a job and have a 401(k)?” he says.

Strategy: If your kids decide to save their money instead of spend it, match what they save. You can match them 100% or 10% — any amount will help them understand the basics of the concept.

6. The basics of investing.

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This may seem like a stretch, but Mangot has had success introducing her 6-year-old to the world of investing by letting him purchase stocks and follow the stock ticker. It’s all about showing instead of telling, and keeping it fun and interesting, she tells us.

Strategy: Open an investment account for your kids and use the money that they have earned to buy stocks with them. “If they actually have their own accounts, they can actually look at how the stock is doing, and how the value is going up or down,” she says.

They’ll get excited about this, especially if they’ve picked companies that interest them, like Disney or Nike. “While a sound investment portfolio is well-diversified, getting your kids started by investing in companies that personally interest them will help keep them interested and motivated,” she explains.

Then, take advantage of the digital tools out there to keep them consistently engaged. Mangot uses the built in stock ticker on the iPhone to let her kids track the market, but there are other online tools that will link to investment accounts and let you track your portfolio, such as the Google Finance tracker and SigFig. Link your kids’ accounts and they’ll be able to follow the market in real time and see the performance of their stocks.

7. How to be proud of their savings.

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Mastering money hinges more on mindset than anything else, and one distinction between rich people and average people is their relationship to money: They see money as their friend, while the average person sees it as their enemy. They are prideful about their earnings and expect to make more — and they generally do just that.

“Help your kids take pride in their saving and investing habits,” says Mangot. “Tell the world.”

Strategy: Encourage your kids to tell their grandparents and other family members that they’ve starting saving or investing their money, suggests Mangot. They’ll likely want to support your kids’ endeavor, and could offer to gift money for their savings or investment account rather than a more traditional present for birthdays and holidays.

Written by Kathleen Elkins of Business Insider

(Source: Business Insider)