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A key job for fathers

The Baltimore Sun

Dads, this is supposed to be your day - a day to relax, to put aside jobs and soak up appreciation for all you've done for your families.

But I have a job for you.

It doesn't have to be done today, but it has to be done.

If you are like most fathers, you've done a good job of feeding your family and providing other essentials, but you may have missed one: Everyone in your household - your wife and your children - needs to know how to handle finances so they thrive in the future.

And, according to research, you are likely to be the best-equipped person in the household to get them onto the right course.

You might not feel like you are.

"A large majority of Americans aren't able to handle finances well," says Dartmouth economics professor Annamaria Lusardi, who has studied how little consumers know about the basic financial principles that guide people toward eliminating debt and investing for retirement. "Only 35 percent, for example, know that if they pay only interest on their credit cards they will never eliminate the debt."

But men, on average, have more basics down than women, Lusardi said. And even when they don't, men are more likely to step forward and take on the job.

Still, although fathers might be the household designee for arranging loans or investing 401(k) money, they could be leaving part of their job undone - their responsibility to equip the next generation with basic skills.

In a 2006 survey, Harris Interactive found that only 4 percent of fathers had tried to help their daughters understand how to plan their financial future and invest money. About 18 percent of mothers gave it an effort. But - on average - women scored 10 percentage points lower than men on questions ranging from compound interest to what happens to bonds in rising interest rate environments, said Lusardi.

So dads, here's the lesson plan:

*For children:

For very young children, start to teach them about earning interest instead of paying interest.

Here's a lesson to try with pennies:

Also, haul out the piggy bank and start talking about putting together a plan to save nickels and dimes for something specific in the future. It's the beginning of the idea of planning and budgeting. You can find further activities through Web resources such as

As your children become older, help them understand more about the vital concept of "compounding" - or earning interest on interest. Without that concept, Lusardi said, Americans don't realize that high-interest credit card balances will strangle their ability to get ahead, and they will miss the opportunity to save small amounts when young and turn it into a fortune.

A survey by the Consumer Federation of America a few years ago showed that only 26 percent of Americans thought they could ever accumulate $200,000. Yet, if an 18-year-old starts investing just $20 a week in a stock market mutual fund, and keeps up the habit for life, he or she will reach retirement with about $1 million, if the stock market climbs the way it has historically.

If the person waits until age 35 to start saving, they will need to invest about $105 a week to get to $1 million. If they wait until 45, it's about $300.

*For college and young-adult children:

Make sure young adults understand that compounding works to advantage when investing, and in turn what it means when it involves interest on debt. In college, students are bombarded with credit card offers.

Look at the credit card solicitations, and show your children how the interest will add up, especially if they miss payments. Student credit card interest often starts at 21 percent. Then there are penalties for missed payments. This calculator - linger/card04/tool.fcs - will help. Put in the average credit card debt for graduating college students, which is $3,000.

Encourage college students to use a debit card and buy only what they can afford.

For college graduates, make sure they are not throwing away the opportunity to make hundreds of thousands of dollars in free money. Let's say a 25-year-old is making $30,000 a year, and works for a company that will match contributions to a 401(k) up to 3 percent. If the 25-year-old invests 3 percent of pay and receives the full match year after year, she will end up with more than $300,000 from the employer match and interest on the match. That's in addition to their 401(k) savings. To accumulate the free $300,000, I assumed their pay increased 2 percent a year and they earned 8 percent a year on average in mutual funds.

*For your spouse:

Some women are highly competent with money and investing. But Lusardi said more women than men struggle with basics and prefer to turn investing and other money decisions over to someone else.

Couples should learn together how to handle money. The average married woman outlives her husband by several years.

To check on how well they are preparing for retirement, couples should work a "ballpark estimate" at For an easy book, try Easy Money: How to Simplify Your Finances and Get What You Want Out of Life by Liz Pulliam Weston or my Saving for Retirement without Living Like a Pauper or Winning the Lottery.

Gail MarksJarvis writes for Your Money.

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