Reuters Money

Want to put your kid on road to Millionaire Row by 21? Here’s how

While some youngsters long to become rock stars or Hollywood heavyweights, others now gravitate towards another stripe of pop-cultural celebrity: the whiz kid who becomes a millionaire before age 21.

That’s not hard to fathom now, given the likes of Facebook’s Mark Zuckerberg and other tech hotshots. But for Susan Beacham — founder of Money Savvy Generation — steady strokes and ingrained habits set kids on the course to riches. And Beacham should know: She practices what she preaches with her two teenage daughters, Allison, 19, and Amanda, 17.

“If you know how to behave like a millionaire by the time you’re 21, you may not have the cool million in hand, but you’ll be on your way,” says Beacham, whose Chicago-area company develops products that teach basic personal finance skills to school-age children. “You’ll have the seed money and have established the good behaviors.”

What follows are five key tips from Beacham, wealth management experts and at least one tyke tycoon who made his first million as a teen. Follow them and chances are excellent your child will have the tools he or she needs to make a million — along with a good chunk of starter funds to boot.

Delay gratification Kids learn early on to spend and enjoy the fruits of consumer society. But Beacham says wealth builders master their urges and live modestly. She cites a study of 1,000 kids published by the National Academy of Sciences that followed children from birth to age 32. The most impulsive “were roughly three times as likely by adulthood to report multiple health problems and addictions, earning less than $20,000 a year, becoming a single parent or committing a crime.”

“Self-control is the key to wealth,” Beacham says. “And the good news for those of us who have kids who weren’t born with the ability to delay gratification is that self-control can be learned.”

Work “Warren Buffet wasn’t a millionaire by age 21,” Beacham says, “but by the time he finished college, he’d accumulated more than $90,000 in savings, measured in 2009 dollars.” Buffett was a hard worker, and by this Beacham doesn’t mean to get a mind-numbing job, but rather to learn the ropes of wealth — especially as an apprentice or entrepreneur.

Passion or obsession? Collecting can add up to serious dollars

You could say that Jay Pomerantz is a fan of the New York Jets.

You might suspect that from the room in his Long Island house, decorated wall-to-wall and floor-to-ceiling with memorabilia from the NFL team – game-worn cleats, bloodied jerseys from the 1960s, old playbooks and even Super Bowl rings. Some of the items are so rare and valuable that the team itself displays some of Pomerantz’s collection in its front office.

He’s spent about $200,000 over 20 years as he’s amassed over 1,000 Jets-related items –

It’s a passion that he estimates takes up to 400 hours a year, and even involves things like picking up former players from the airport. And his wife? “She gave up about 18 years ago,” laughs the 44-year-old, who runs a successful baby accessories business. “If she could close her eyes and make a wish, she’d probably do away with the whole thing. But she’s come to accept it.”

It’s a peculiar human trait, the collecting bug. And it’s not just limited to the Archie comics or baseball cards of your childhood. Adults collect, too — and with adult salaries, such passions can add up to serious dollars.

“Some people get so wrapped up in collectibles, that they think about it all the time,” says Dr. Tom Manheim, a financial therapist in Del Mar, California and author of Money Trouble. “They’re always on the prowl for the next piece. Even if it puts them over budget, it’s about something greater than money.”

If you’re Jay Leno or Jerry Seinfeld collecting vintage cars, or Debbie Reynolds amassing 40 years of movie memorabilia, that’s one thing: money is no object. For the rest of us, living on more modest means, a pricey collection can be a budget killer.

Budget wars: The middle class loses big time

Now that federal government shutdown has been averted, it’s a good time to examine what’s at stake for most of America in the crucial next round of budget talks.

Not doing anything to reduce the size of government debt will be catastrophic. Not much quibble there. But acting hastily and cutting the wrong things can be even more costly to social and economic welfare.

Neither the Republican nor the Democrat’s budget plans for 2012 will meet the major challenge of sustaining social programs while cutting the most egregious waste.

Since the GOP budget proposal has been published, let’s eye that first. The 2012 budget template, released by Paul Ryan, Republican chairman of the House Budget Committee on April 5, cuts $6.2 trillion from government spending over the next decade. Some clarity is needed here in the semantics of this plan. Cutting is not the same thing as “improving” or “reforming.”

One of the hallmarks of the Ryan plan — a GOP campaign document for 2012 — is cutting top personal income-tax rates from 35 percent to 25 percent. As part of his “path to prosperity” theme, he estimates that along with other cuts and a lower corporate tax, this will create 2.5 million private-sector jobs, lower the unemployment rate to four percent by 2015 and add $1.5 trillion to real Gross Domestic Product over the next decade.

That claim is not only unrealistic, it’s never been supported by any sound economic science. During and after the George W. Bush era, when tax rates were cut on income, capital gains and dividends, unemployment rose and GDP eventually fell.

Would cutting taxes again — actually reducing revenues further and creating a bigger structural deficit — make a difference this time around? This is not only wrongheaded, it makes no mathematical sense. You can’t reduce the deficit by eliminating a key and ready source of revenue.

IRS commissioner: My taxes are done. Where are yours?

A threatened government shutdown won’t stop Internal Revenue Service commissioner Douglas Shulman from filing his own taxes on time; they’re already done. “I make sure it gets done on time,” he told Reuters. “I just have to look it over.” He said that taxpayers should follow that example and not expect to get any extra filing time if there is a temporary federal work stoppage.

“The IRS will be accepting tax returns,” he told the National Press Club in a luncheon speech on April 6. “The American people should file their taxes and they are required to file by April 18.”

Taxpayers who file electronically won’t face any delay in getting their refunds if a budget stalemate does force a government shutdown, because they are processed automatically, he said. But anyone who files a paper return may find their refund delayed if the government does stop all but essential services. Reuters had previously reported that the agency would continue to deposit tax checks from filers.

Shulman has already received his return back from the certified public accountant, identified only as “Gary”, who he has used for years. “I look it over, but all that I ever say is ‘Let’s be more conservative,’” he said.

“I figure that as commissioner of the IRS it’s a good idea for me to obey the law,” he said, noting that he wouldn’t want to embarrass President Obama or the Secretary of the Treasury, Timothy Geithner, who had his own problems with his tax return before he took that office.

Shulman outlined his vision for the tax filing season in the future, when the IRS would be able to pre-populate taxpayers’ forms with data from their 1099 and W-2  before anyone filed their returns. But he said that vision was still years off and not in the specific planning stages now.

Social Security cuts annual statement mailings

Here’s a chicken-or-egg question for you: is Social Security’s future really imperiled, or do Americans just think it’s falling apart because Washington keeps shooting the program in the foot?

Consider the Social Security Administration’s (SSA) decision to stop sending out the annual benefit statement we all get in the mail. The agency plans to save $30 million by suspending mailings for the remainder of the current fiscal year, which ends in September, and an additional $60 million next year by restricting mailings to workers 60 and older.

Statements usually are sent out about three months before your birthday; the suspension will start in April, which means everyone with birthdays in July and later won’t get a paper statement this year. Next year, the SSA intends to resume sending statements to Americans over age 60; it’s working on an online download option for everyone else.

SSA Commissioner Michael Astrue told a Senate appropriations committee about the suspension in testimony last month; Kiplinger’s Personal Finance ace Mary Beth Franklin picked up on it with her story yesterday.

Like all federal agencies, the SSA is operating at FY 2010 levels due to the ongoing Washington budget stalemate. “We’re halfway through the current fiscal budget year,” an agency spokesman says. “We needed to start making cuts.”

Personally, I’m okay with online access to just about everything — it’s greener and saves money. But the paper Social Security statement is different. It provides a valuable annual reminder of what you can expect to receive and how benefits are calculated. It also prompts us all to make Social Security part of our long-range retirement plans.

In fact, the SSA had been working on ways to improve the annual statement, says Cindy Hounsell, president of the Women’s Institute for a Secure Retirement (WISER), a nonprofit group that works to promote financial education and planning among low- and moderate-income women. Ideas under consideration included new inserts customized for young people and women, who rely on Social Security more heavily than men stay out of poverty in old age.

What if you can’t pay your taxes?

Getting to the end of your 1040 form and finding a balance due isn’t fun, though at least you can pat yourself on the back for not having made a free loan to the U.S. Treasury. But knowing that you don’t have the money to pay that bill can make you really miserable.

Here’s are seven ways to keep the payments — and the misery — to a minimum.

* Scramble. The deadline for filing income taxes isn’t until April 18 this year. That gives you one extra weekend to hold a yard sale, cash in a bank CD or tap your home equity line. Those are all reasonable places to get money to pay your tax bill.

* Don’t use your credit card. When you use your credit card to pay your income taxes, you’ll have to pay a convenience fee of as much as 2.35 percent, just for making the transaction. And with the average annual interest rate on credit cards now pushing 17 percent, according to IndexCreditCards.com, it’s hard to see how this makes sense.

You’re better off borrowing from the Treasury itself; its current interest rate for late payments is four percent a year. (That figure changes quarterly.) Even the so-called “convenience checks” that your credit card company says charge zero interest usually require upfront fees that are higher than the IRS rates.

* File your return on time. Even if you don’t have the money, you’ll save by getting the paperwork done. That’s because the Internal Revenue Service penalties for not filing are far higher than the penalties for not paying.

Consider this example, provided by the Tax & Accounting business of Thomson Reuters:

Can you pass a high school financial literacy test?

When it comes to money, are you smarter than a high school student? Now’s your chance to find out.

Students across the country are taking part in the National Financial Capability Challenge, a voluntary test running from March 7 to April 8 aimed at ramping up knowledge in basic financial matters such as spending, savings and investing.

It’s all part of the Treasury Department’s goal to ingrain basic financial savvy into the minds of youngsters.

“We have a long way to go in this country before students in this country are financially literate,” says Matt Yale, deputy chief of staff at the Department of Education. “This isn’t like U.S. History — everyone learns U.S. History. This is a topic that’s almost taboo because nobody wants to talk about it.”

According to Yale, the problem is two-fold: Many parents don’t feel comfortable talking about money matters, and it’s hard to cram more curriculum into an already-packed school day. The result? Kids who don’t know how a credit card works, how to save for a 401(k), or what a 401(k) even is.

“By the time kids learn about this in college, it’s too late,” Yale says.

So do you know more than your teenager? The Treasury gave Reuters a sneak peek at the types of questions appearing on this year’s exam. It’s worth noting that last year’s average score was 70 percent — the test “isn’t designed to fail anyone,” Yale says — but even those with a passing score shouldn’t be too smug. There’s always room to learn.

Meet the “Tiger Mom” of financial education

“How can you do that to your kids?”

That’s the question Sacramento’s Sarah Cook hears all the time. And rather than making her feel embarrassed or guilty, she revels in the scorn. Because it tells her she’s on exactly the right track.

To be clear, Cook isn’t quite the Tiger Mom made famous by author Amy Chua, whose drill-sergeant approach to parenting has lit up message boards all over the Web. She doesn’t loom over her three kids during their piano lessons, or fire thousands of math problems at them until they achieve absolute perfection.

What she is doing: Leading a one-woman revolution against today’s entitled generation. Most kids these days want what they want, when they want it — and God help the parent who doesn’t provide the latest-generation iPhones and Xboxes, because you’re in for an epic tantrum.

Enough, says Cook. It’s time to get tough and furnish our kids not with their whims of the moment, but with the financial smarts that will last them a lifetime. “Parents have given our kids way too much, and always just say ‘I’ll buy it for you,’ ” says Cook, who started the website RaisingCEOKids.com. “I want them to be not so entitled.”

What that means in the Cook household: A fixed family budget, encouragement to develop their own income streams, and a system of tradeoffs where if the kids have their hearts set on buying something, they have to cut back elsewhere. So far, it’s working like a charm. When the kids wanted a trampoline, it meant scotching a family vacation to New York City. When they want a particular meal, instead of racking up big restaurant bills, they cook it themselves at home. When they wanted to free up some money in the family budget, they cut back on their cable package, and now stream Netflix and Hulu instead.

And when her son Jacob wanted toys and the latest tech gadgets, he simply had to earn the cash himself. Now, at 14, he has already run a business selling Pokemon cards on eBay, stripped down old video-game consoles and resold the parts for a profit, and fixes computers for $20 to $30 an hour.

Tax reform in an era of deficits

Eric Toder is an Institute Fellow at the Urban Institute and co-director of the Urban-Brookings Tax Policy Center. The opinions expressed are his own.

This post is part of an ongoing series on tax reform ideas. Where do you stand? Come back regularly to be a part of the national debate.

The retirement of the baby boomers over the next 20 years will create enormous pressures on the federal budget. Current tax and spending policies are unsustainable. We will either have to cut substantially benefits for older Americans – the largest component of the Federal budget – or raise more revenues.

There is no political consensus on the correct mix of spending cuts and tax increases, but it is hard to imagine any politically acceptable solution that will not include some increase in revenues as a share of GDP.

Unfortunately, our tax system is too complex, includes within it too much hidden spending and is incompatible with a globalized economy. Simply raising rates on existing tax bases will only make matters worse. If more revenue is to be raised, we need a better tax system. The main components of such a reformed system would be:

Less needless complexity In a complex economy like ours, it is impossible to have a simple tax system that is also fair and even-handed in its treatment of taxpayers with similar incomes. But our tax law is much more complicated than it needs to be for any rational purpose.

For example, we don’t need multiple and overlapping incentives for higher education and retirement saving and we certainly don’t need to require taxpayers to calculate their taxes two different ways (the regular tax and the alternative minimum tax) just to limit a few tax breaks.

The Obama budget: What’s NOT in it for you

President Obama’s proposal for the fiscal year 2012 federal budget is just that: A proposal that would have to wind its way through a Republican-controlled House and a divided Senate to become law. So there’s no sense in panicking about what’s in it and what isn’t.

But here is why you need to pay attention: The wish list, released on Feb. 14, is indicative of the themes that will dominate the remainder of this presidential term and the 112th Congress. Individual taxpayers will find a tight budget. Retirees could get an extra break, and students may lose valuable subsidies.

Here’s a look at some of the key issues and specific proposals that will affect consumers.

Tax breaks and bumps. The Obama Administration’s plan includes a one-time payment of $250 to retirees. This was a move originally requested by the AARP to make up for the fact that there hasn’t been a cost of living increase for Social Security recipients for two years. The Democratic House already turned this down last year, but if it gets tucked into a much larger bill, it could make it through in 2011.

The White House plan also makes the “fix” for the alternative minimum tax permanent. That saves taxpayers who have big state tax bills along with large families from getting stuck by the AMT, which was intended to snag wealthy tax avoiders but instead penalizes those who have big writeoffs for state taxes or take personal exemptions for many children.

To pay for the first three years of the AMT fix, it attempts to revive the battle over tax cuts for the wealthy. The new budget blueprint would limit deductions for wealthy Americans (those earning more than $200,000 as individuals, $250,000 as couples) to 28 percent of their income. That would hit the home office deduction, charitable deductions and more. President Obama has proposed that before, and observers have suggested that Congress would be unlikely to go back in and start tinkering with income tax policy absent a complete tax overhaul drive.

Student loans could get pricier. The Obama budget takes a bite out of the benefits many graduate students receive. It would eliminate the federal subsidy which covers the 6.8 percent interest on those loans while the student is in school. Over a 10-year repayment plan, that would cost the typical graduate student roughly $2,314 in added interest for every year of graduate school, according to estimates calculated by Mark Kantrowitz, publisher of FinAid.org, a financial aid education web site. But that might be just the start of further cuts, says Kantrowitz.