Paul Ferraresi

The summertime is a wonderful time to institute an educational system for your children. I am not talking about “text book” learning, but rather, your life experiences with money.

You have a host of examples that have accumulated over your lifetime. You can begin a simple mentoring program. The pressures and hectic activities the kids go through during the school year cease in the slower summer months.

For instance, many kids (possibly even you) that were latch-key kids, learned how to develop shopping lists, budgeting, reviewing bills, cooking, clipping coupons and how to use their allowance wisely.

I am sure you have your own stories that show simple ideas that you can teach and transfer a generation’s worth of financial knowledge. Obviously, children with financial skills and a history of being able to talk about money are better able to take on life. One method of education is an allowance. Do not tie the family chores to the money. Have the kids set up 3-4 “buckets” for their money: SAVINGS (say for college); Sharing (to contribute); Spending (for new purchases) and Spending later (for a later purchase).

Another method is to talk about bad habits of yours so they can learn. When driving to the mall with their kids, you may want to say out loud in the car: “I’m usually very tempted to buy clothes that are on sale, even if I don’t need them. Then I get home and wish I hadn’t bought them. So, I’m going to leave my wallet in the car. If I really want something, I can always come out and get my wallet.” Tactics like these can help your children understand how to value a dollar.

If the children run out of allowance money or want to buy an impulse item… let them “borrow” the money from you at a reasonable interest rate, but, they must put up some of their collateral until it is paid off… say a game or their computer. They can not use the collateral until the loan is paid off.

Oh, you say, that hurts and is “tough love.” Well, it is either discipline now or regret later.

As of this writing the stock market has made a major recovery from the March 2009 low.

Many people wanted to “get out” of their retirement plans because they had dropped so much in value. That is the wrong reason to get out of your retirement plans early. I have written many times in this blog that IRA / 401K and other qualified plans are “time bombs.” You will end up paying substantially more in taxes when you retire than the amount you saved in taxes while contributing (that is, the extra amount in taxes you pay in retirement is almost 10 times the amount of taxes you saved while contributing).

I am asking you to think outside the box. Although most retirement plans have improved in value by 25-30% over the past few months they are still underwater in value from their highs 18 months ago.

Consider cashing out of these “time bombs” now, pay the tax now, and invest the monies into:
(1) A program that will generate lower capital gains tax in the future. With the massive stimulus package spending EVERYONE will be paying much higher taxes in the future. So to avoid this why not pay your taxes in the future at a lower capital gains tax rate than the higher ordinary income tax rate?

(2) A better approach….cash out of your retirement plans and, pay the tax now. Then invest in a program that will grow tax free, you can have access to the money tax free even before age 59 ½ without any tax or penalties, and when you die, the money transfers tax free.

Folks this is a layup with a ladder. Need some more direction on this? Email us at Darlyn@fgmci.com or call (713) 871-5919. By all means subscribe to our new blog www.WealthyFutureblog.com to learn more about this topic and other wealth building programs.

The last few weeks have shown completely different approaches to managing energy by China and the U.S. China has lent $10 billion to Brazilian oil giant Petrobras to further its offshore exploration. In return China will get a future flow of oil equal to 160,000 barrels per day (bpd). China has lent Rosneft, Russia’s oil firm, $15 billion and Russian pipeline operator Transneft $10 billion for agreeing to supply 300,000 bpd from the new Siberian fields for the next 20 years.

In Venezuela, China will contribute $8 billion to a strategic fund for oil development mainly to increase Venezuela’s oil exports to China. China is paying now at today’s prices to insure growth in the supply of oil and their long term access to its share.

Meanwhile here in the U.S., the Obama administration is planning to severely tax exploration and production companies operating in the Gulf of Mexico (our core area of production). Boy, that will be a real incentive for any company to consider looking for oil (tish-tish). This will also make U.S. oil production more expensive (duh!).

The government has delayed and rescinded the opening of other offshore areas for additional incremental exploration and possible production (higher prices for us and less supply. Oh, and you did not know about this? HMMM! I thought we were to have full transparency in this new administration).

Since October 2004 the U.S. Department of Energy claims the global oil supply hasn’t grown much even though we had huge price increases. Most experts agree that large new oil supply is not in the picture.

So, if the supply for oil will be, say, “X” and China has already “bought up” an amount equal to “Y,” then, X-Y will equal the remaining supply. With the demand for oil rising and supply only at “Y”…..well better prepare for higher prices. Experts are predicting a price of $150-$180 a barrel very soon. That is without a major interruption in flow (war, terrorism, etc.) Ah, yes higher gas prices. Better prepare as well as make investments to benefit your family. Once again…discipline or regret.

For years Americans have complained that the interest rates, excess fees, overlimit fees and change in rates by credit card companies are not reasonable. Credit cards have been a profitable center for most banks and other issuers. Keep in mind that a large percentage of Americans are way behind on their payments (not just recently, but for years), many people run up charges and never pay a penny on the debt, and then, there are the fraudulent activities on cards. Well, not in defense of these card companies, but, someone needs to pay for these “bad transactions.” Guess what…. It has been you. Yes, the “good credit” people have and are paying for the “bad credit” people.

You know, I remember over 20 years ago when Representative Markey, from Massachusetts, brought the credit card companies into a Congressional hearing to go over the same complaints listed above. He demanded that all card interest rates should be no higher than 8%. The card companies agreed to return in two weeks to submit their thoughts and findings (you see, the card companies had testified before Congress about the “bad credit” people forcing them to keep rates high to make up for the losses).

Two weeks later the card companies presented a short list of those Americans whose credit scores were strong enough to support an 8% rate. Also, there was not one Senator or Congressman that made the listing of “good credit” people. The hearings were adjourned.

Well, your cries have been heard in Congress again. But be careful what you pray for…. The present administration passed a bill on May 19, 2009 to “protect the consumer.”

This new bill will not allow the credit card companies to raise your interest rate unless you have been late for 60 days. It eliminates the overlimit fee and many other benefits for you. BUT, there is a cost to you!!! DUH!!! The correct way to use a credit card is to make sure the balance is paid in full by the end of the billing cycle, say, 30 days. So, you will have no interest charges if paid on time and using OPM …other people’s money. That is the correct finance approach. Well, that is no longer true, “ol’ bankrupt breath,” under the new rules. Effective when you swipe your card…interest begins to accrue immediately. There is NO more grace period. So if you run up, say, a $1,000 charge today, at a 30% annual card rate, in 30 days when the bill comes you will owe $1000 + $25 interest = $1025. So, what did you gain? Well, to facilitate the “bad credit” people and their slow paying, the “good credit” people are paying the price. Sounds exactly like the bailout of the subprime mortgage people. Good payers are paying for bad payers. “From each according to his ability to each according to his need” – sound familiar? – Check your history books under the communist manifesto.

You wanted change? You voted for change, you’ve got change, but I don’t think it is the change you voted for…since with this new law you will no longer have any “change” left in your pocket.
Ah, discipline or regret.