Oh, and if you haven’t had a chance, enter The Right Financial Plan Giveaway here on AFM. I’ll announce the winners on Thursday morning so you still have time to enter. I’m giving away three books.

What led you to write The Only Guide You’ll Ever Need for the Right Financial Plan?

The three other “Only Guides” (links provided at end of interview) presented the academic research on equities, bonds and alternative investments. They presented what I call the science of investing. The new book is all about the “art of investing”—how do you take the academic research and best apply it to your personal situation. So the book discusses issues like who should own more equities and who should own less, who should own more small caps and who should own less, and similarly for all equity asset classes. It also does the same type thing for bonds. So it addresses such issues as who should own more TIPS and who should own more nominal bonds, who should own shorter term bonds and who should own longer term bonds, and so on.

It also is the first book I am aware of that not only helps individual investors write their own investment plan, but helps them with the ongoing care and maintenance of the plan, addressing issues such as rebalancing, tax management, asset location and withdrawal strategies. But the book goes well beyond that as it also addresses issues like mortgages, social security, long term health care and the designing of a family wealth mission statement. In other words it teaches people how to write a financial plan, not just an investment plan.

To my knowledge, this book is the first of its kind to take on this large task and do it in a way that is accessible for the typical individual investor.

What did the financial crisis of 2008 (and longer) teach you?

I really don’t think it taught me anything, just provided reminders about how risky stock investing is, and what the winning strategy is. Don’t take more risk than you have the ability, willingness or need to take. And the reason is that basically everything that happened in 2008 had already happened and thus investors that knew their financial history should have been well prepared for the events. In other words, while investors could not anticipate when such a crisis would occur, their plan should have incorporated the virtual certainty that such a crisis would occur and the only things we would not know were when it would occur, how long it would last and how deep it would be. In other words, a well-thought-out plan anticipates the risks and builds those risks into the plan. That is why Chapter 2 on The Investment Policy Statement includes a discussion on the need for a plan B: What you will do if the risks show up, as they did in 2008.

What have your clients learned from 2008?

Unfortunately, some people learned that they were overconfident of their stomach’s ability to deal with the stress of severe bear market. Thus, they took more equity risk than they should have, and that in a very few cases led to panicked selling which is almost impossible to recover from. And they did this despite all the education we provide on an ongoing basis. For example, during bull markets we persistently remind clients of the risks of equities and that severe bear markets can occur. Then during bear markets we remind them that we fully expect that they will end (though we cannot be certain) and how important it is to remain disciplined. We also remind them that we had discussed the fact that such bear markets were virtually a certainty and that they were built into the plan and they signed off on that plan, indicating that they understood the risks and were prepared to deal with them.

But there were many other lessons investors in general learned. For example, they learned that as much as they would like to believe otherwise, active managers don’t protect investors from bear markets. They underperform at least as poorly in bear markets as they do in bull markets. They also learned the dangers of stretching for yield, investing in such high risk fixed income investments (which we avoid) as preferred stocks, junk bonds, convertible bonds and emerging market bonds. Those investments, as my book discusses, should be avoided for several reasons, including their risks don’t mix well with the risks of equities.

If you were to pick one thing that is most important to a person’s financial plan, what would it be?

While there are many components to a good financial plan, the most important I think is to make sure that the investor’s equity allocation does not exceed his ability, willingness and the often-overlooked category of need to take risk. The great shame is that so much money was lost by people who took risks they had no need to take because they had already “won the game.” In other words, they could meet their financial needs with very low equity allocations, such as 20-30%.

In your opinion, where do people fail most frequently when it comes to financial planning?

The most frequent failure is the failure to not even have an investment plan in the first place. And we all know that those that fail to plan, plan to fail. The vast majority of investors, even many who work with financial advisors, do not have a written and signed investment plan that lays out their goals, defines the risks they are willing to take and includes an asset allocation and rebalancing table. The second biggest mistake is the failure to integrate a well-thought-out investment plan into a well-thought-out estate, tax and risk management plan. A great example is I knew of an investment advisor that had a great investment plan but he did not have sufficient life insurance to take care of his family in the case of his premature demise. Fortunately we performed a needs analysis for him and convinced him to buy a large life insurance policy. That was the good news. The bad news was that he died a year or so later from cancer. Now he had a great investment plan but it would have failed because he did not live long enough, and thus had not saved enough. His plan failed for reasons other than bad investments. The same type mistakes can occur because people don’t title assets appropriately, designate the wrong beneficiaries, or fail to buy appropriate amounts of liability insurance of all kinds (especially umbrella policies). A good financial advisor should identify such issues, eliminating those risks and mistakes as much as possible.

What does a financial plan look like?

As we discussed above, a good investment plan should clearly spell out the investor’s financial goals as well as the risks they are willing to accept. It should have an asset allocation and rebalancing table as well, and lay down the rules for rebalancing and tax loss harvesting (such as how often they will be checked–I recommend at least quarterly, though we basically do it daily, thanks to technology we have invested in). And as I discussed, the plan should also include what I call Plan B: what options you will exercise if severe bear markets occur. As the book discusses, those options might include cutting spending, working longer than planned, moving to area with a lower cost of living, and so on.

How often should people look at their financial plans? Life changes? Yearly?

This should not be a timed based event, though I recommend it be reviewed annually just to be on the safe side. The only right way to do it is as follows: Since the plan is based on certain assumptions about ability, willingness or need to take risk, whenever any of the assumptions changes, you should change the plan. Generally that will be caused by a life event such as a death in the family, divorce, loss of job, promotion, inheritance, and so on. However, bear markets sometimes teach us lessons as well, as I mentioned. For example, I think it likely that even investors that did not abandon their investment plans may have cut back on spending. This would be a natural thing to do given that risks had increased. Having cut back on spending they may have learned that they really did not need the higher spending levels they were used to and they could be just as happy spending less. Such a person should then consider lowering their equity allocation because they now have a reduced need to take risk.

What are you advising your clients with regards to the future of social security? Does the strategy change based on age?

First, there is a great book on the subject called The Coming Generational Storm: What You Need to Know about America’s Economic Future*, which I highly recommend. While one of my favorite expressions is “my crystal ball is always cloudy,” I think it is safe to say that because of the depth of the problem it will be necessary to attack it from all directions. That means we will almost certainly see cuts in benefits (including perhaps change in the inflation adjustment), increased age requirements and increased taxes. But, in my opinion social security will remain an important part of the safety net we provide the elderly.

In your 40-year career, what is one thing you wish you would have done differently?

Learned just how tyrannical the power of the Efficient Markets Hypothesis is at an earlier age. Fortunately, eventually I learned that while it was possible to beat the market it was so unlikely that you would succeed that it was foolish to try. That not only led to superior investment results but a higher quality of life as I stopped reading (or watching or listening to) what I learned was nothing more than what Jane Bryant Quinn accurately called investment porn. That gave me more time to spend on far more important things such as my family, friends and hobbies such as reading. I read about 60 or so books every year, most of which have nothing to do with investments. My favorite category is historical fiction, with two of my favorite authors being Philippa Gregory and Bernard Cornwell. I also like good detective novels, and among my favorites are Robert Crais, Michael Connelly, Dennis Lahane, Ross Thomas and T. Jefferson Parker.

What’s next on your plate? Any more books to look forward to?

Actually my plate is pretty full. I have a new book called The Search for Alpha. Wiley will be publishing it, with expected release of February 2011. The book examines the evidence on active investing by looking at the research on mutual funds, individual investors, pension plans, 401k plans, venture capital, hedge funds and behavioral finance. It then shows how individual investors can outperform the vast majority of pros by building globally diversified portfolios and staying the course. It will be a much shorter book than some of my others, along the lines of “the Little Book” series.

Then I am in the process of completing an updated and thoroughly revised version of Rational Investing in Irrational Times. The new book is tentatively titled 76 Investment Mistakes Even Smart People Make and How to Avoid them. The prior book only covered 52 of them.

And I have also just finished the third in the Wise Investing Made Simple series. Hopefully the second will be successful and the publisher will be interested in doing the third.

Thanks for your time, Larry. Good luck to you in all your adventures.

Larry also told me that he and his co-authors would be happy to answer any questions AFM readers might have. Send them to me in an email (JLP-at-AllFinancialMatters.com) and I’ll forward them to Larry. Or, leave them as a comment and I’ll see if I can get Larry to stop by and respond that way.

Also, Larry writes a regular blog called Wise Investing for MoneyWatch.

Related books (affiliate links):

• Wise Investing Made Simpler (Second in a series)

• The Only Guide to a Winning Investment Strategy You’ll Ever Need: The Way Smart Money Invests Today

• The Only Guide to a Winning Bond Strategy You’ll Ever Need: The Way Smart Money Preserves Wealth Today

• The Only Guide to Alternative Investments You’ll Ever Need: The Good, the Flawed, the Bad, and the Ugly (Bloomberg)

*Affiliate Link

Q: What led you to write Financially Stupid People Are Everywhere: Don’t Be One Of Them*?

A: I’d written a lot about personal finance in the past, and so had other authors, but the subprime mortgage crisis made it clear that none of our previous efforts had made an impact. Most people are still financial nitwits. In a moment of frustration, I slammed my fist down on the table one day and said, “there are so darned many financially stupid people!” I wrote an article about the mess called “The Whole Damn Sham,” which really resonated with readers, and they asked me to put some of the ideas into a new book. Those two moments made me think that another attempt at showing people the slimmest basics of managing their money in a manner more straightforward than past attempts, was needed.

I decided that the new book should not cover the whole spectrum of being financially smart, but just four ideas that would solve 80% of most people’s financial troubles, along with — and this is key — an explanation of WHY it’s so hard to get ahead in America. There’s a concerted effort at work to take people’s money, and I believe that when people see it clearly they’ll be more motivated to defend themselves against it.

Q: I followed the mortgage crisis pretty closely on AllFinancialMatters.com (my readers probably got tired of those posts). I came to the conclusion that there were lots of parties responsible for the crisis that occurred. However, you seem to hold one party most responsible. Which one and why?

A: Consumers, because the problem starts with their stupidity. There were plenty of shenanigans and shady practices in government and banking, but that will never go away. Anybody who thinks banks will stop paying off politicians and that politicians will stop doing favors for bankers, is living in a child’s fantasy world.

There’s always been a collusion between government, banks, and big business, and they’re always will be. No new rule or supposed reform will change that or truly protect citizens. The only real way to rein in the bad practices of government and banks is to get smarter with our money. Stop signing on to bad loans. Poof! Just like that, the subprime mortgage crisis would have been impossible. Yes, banks would have offered their poison, but if nobody drank then the damage would have been zero. Instead, dope after dope put the cup to his or her lips and the crisis was born.

There’s a reform effort underway right now. So what? If people still make all the same mistakes, we’ll get into a different kind of mess down the road. There’s no sign that the mistakes won’t be made again, so expect another mess.

Q: Do you think we have reached critical mass with regards to financially stupid people? Is there a way out? How do we get financially stupid people to take an interest in personal finance?

A: This is my last attempt. I won’t write any more personal finance books after this one. If seeing the latest disaster brought on by idiotic money management and reading four simple rules to avoid doing it again STILL doesn’t wake up the army of idiots, then I think nothing ever will, and I will write it off as a lost cause and move on.

That’s why my book doesn’t offer solutions to the corrupt backdrop that creates financial traps for people. That won’t go away. The book suggests to readers that they not be one of the financially stupid, but doesn’t suggest that we can get rid of the financially stupid. My lack of faith in humanity generally shows up in the structure of the book. Cynical? Some would call it that, but to me it’s just the logical conclusion at the end of all the evidence in front of us.

My hope is that financially smart people will put the book in front of financially stupid people, and that it will manage to make more progress with them than all past attempts due to its simplicity, blunt language, and complete picture showing the machinations at work against citizen wealth.

Q: You devote several chapters of your book to politics. Why?

A: To show how politicians work with moneyed interests to skew the landscape in a way that transfers wealth from citizens to government, banks, and big business. People who don’t understand that are not as motivated to defend themselves against it. This is a point that clearly separates this book from others on the personal finance shelf. It’s not enough to see how to manage and protect our money. We must also see why and against what.

It’s also necessary to understand that all politicians, regardless of party, are beholden to the same moneyed interests. I want a greater percentage of Americans to see the political sideshow for what it really is, and to peer through the fun rallies and emotional issues to what’s really going on: the creation of servitude for most voters. The book spends plenty of time showing how money, not voter opinions, determines the future. People need to stop expecting government to protect them, and grasp that government is part of the group trying to fleece them.

I think people who get this can enjoy their financial success more. They will know that the schemers at the top, the puppet-string-pullers if you will, don’t pluck a single dollar of wasted cash out of them. That feels good.

Q: You talk about how much influence corporations have in the political process. What, if anything, can be done to limit such influence?

A: Frankly, not much. There are admirable movements underway right now to limit the role of corporate money in politics, but there have been such movements for a long time. Despite a citizen interest in campaign finance reform, it never happens. Witness the Supreme Court decision in January, Citizens United v. Federal Election Commission, that gave corporations the same rights of free speech that our founding fathers created for people. Gradually, corporations achieve more control, not less.

For more on this, please see my recent article, “Is Democracy Dead In America?” [http://jasonkelly.com/2010/07/is-democracy-dead-in-america/]

I deliberately avoided proposing solutions in this book. Finding solutions is a worthy endeavor, but not in this book. This book assumes it’ll never get better, so people need to get smarter. It focuses on what individuals can do to protect themselves in the event that the backdrop remains as financially hazardous as it is today, which it probably will.

Q: I mentioned in my review of your book that I felt that unions and lawyers also play a significant part in politics. What are your thoughts on that?

A: I agree. This book’s focus on corporate moneyed interests wasn’t meant to imply that they’re the only moneyed interests. If anything, the existence of other reasons the tilted table won’t be righted in favor of citizens confirms the wisdom of focusing on how to defend ourselves instead of on how to fix what might be an unfixable machine.

Had I considered every reason that government can’t change, the book would have become encyclopedic and people would have lost sight of the ways to protect their wealth, and why. The book is intended to get families financially safe, not to right the listing American government.

Q: I gathered from your thoughts on health care that you would welcome a single payer system. What made you open to such a plan?

A: What I point out in the book is that I don’t really care whether the middle man in health care is a private insurance company or a government agency, as long as the ultimate cost to the consumer becomes affordable. I go to lengths to show that enough tax revenue exists to provide every citizen with health care right now, if we only reshuffled government spending priorities away from corporate interests to citizen interests.

For a specific look at how government always leans in favor of corporate profits, see the table on page 139. When government uses its tax revenue to fight pointless wars that profit defense contractors, it’s not called socialism. However, when government uses its tax revenue to provide health care to the people who provided the revenue, it’s called socialism and a government takeover.

A good solution would be to keep taxes the same, but re-prioritize spending so that current taxes provide more social goods. If that’s impossible, as it seems to be, then at least collect fewer taxes so citizens have more money in their pockets to pay for all the services that their taxes don’t provide. Instead, we end up with the worst possible outcome: high taxes without benefits coming back to those who paid them.

An excellent look at this is on page 148, your lifetime income battery. The picture shows a battery divided into thirds. The top third is drained out: “Taxes taken from you and spent on bank bailouts, wars, corporate welfare, etc.” The middle third is drained out: “Needs not provided by taxes taken from you, including health insurance, car insurance, higher education, etc.” Only the bottom third is not drained out. It’s the only part of your income under your control.

People need to think like a corporation to survive in America’s political landscape. What’s in your interest? To get as much return on the taxes you pay. What good have the wars in Afghanistan and Iraq done you? None. Wouldn’t you have rather received cheaper or free health care instead? Sure you would, because that’s in your financial interest.

This book is all about the money, not ideology, and the money it’s most concerned about is yours, and how you can protect it.

Q: What was the most startling thing you discovered when conducting research for your book?

A: How most of the key people in government don’t change from one president to the next.

My favorite example of this is that Larry Summers is the man most responsible for repealing the Glass-Steagall Act of 1933 that had separated speculative investment banking from ordinary commercial banking so that blow-ups on the investment side wouldn’t impact consumers on the commercial side. That worked like a charm until Summers and others in the Clinton administration nullified it. In less than a decade, we were hit by the biggest financial meltdown of our lives because the now combined banks blew themselves up with the investment side of their houses, and thereby took down the commercial side as well.

So, of course we should keep Summers and others of his ilk away from the levers in Washington, right? How better to do that than start with a fresh serving of hope, a candidate more ensconced in hope than any we’d ever seen before: Barack Obama. Mr. New, Mr. Future, Mr. Audacity of Hope. Whom did he appoint as his chief economic adviser? That same Larry Summers.

Elections don’t change as many faces as people think. That’s why we’re on a steady path toward more financial danger, not less.

Q: The bio on your website mentions that you have been living in Japan since 2002. How do the financial habits of the Japanese compare to those of Americans? Any plans to move back to the States?

A: Japan’s government is as troubled as America’s, so we can’t learn any lessons there. Where we can find useful habits are among the citizens, ordinary people managing household budgets.

The big difference is that Japan’s economy is cash based. People save, then buy. In America, too many people buy with debt, then spend the rest of their lives paying interest on that debt as it grows even bigger with more purchases. I’ve come to enjoy very much the handing over of real cash to buy even big-ticket items like a new car, a new computer, and an international plane ticket.

The joy of consuming that way is that it enhances the best part of consumption, which is anticipation. When people buy everything they want right now on credit, they don’t get to enjoy what they bought as much as they would if they thought about the object of their desire for months, saved steadily, and then walked in one fine day and slapped cash on the counter for it. That anticipation part of the process is free, and so much fun.

The use of debt for instant gratification is certainly not free, not fun, and robs people of the joy of looking forward to their purchases.

As for moving back to the states, I’ve always felt that I would one day but I just haven’t wanted to yet. I get back to see my family and friends in California and Colorado a few times per year, so I don’t feel far away. Emailing and phone calling is easy and inexpensive, so living abroad has never been simpler.

Which, by the way, is a great reason to achieve financial freedom. People in debt can’t as easily pick up and move overseas. People sitting on a pile of cash are unencumbered, and can throw a dart anywhere on the world map and take themselves to a place they never imagined. Trust me, life is very different when lived that way, and absolutely wonderful.

Q: So after researching and writing your book, are you generally optimistic or pessimistic regarding America’s future?

A: I’m pessimistic that the corrupt backdrop will change before America reaches a point of near collapse. For the reasons stated above, I think taxes will rise and get wasted on a scale we never thought possible until we reach systemic financial failure. I believe that such a failure could bring a major war, the same way that the Great Depression was followed by WWII.

However, I’m optimistic that more free flowing information will inform citizens of how we got here, and encourage them to change their habits to protect themselves and avoid contributing to future crises by failing to pay their mortgage or credit card debt, for example. In so shoring up their finances and wising up to the machinations of government and its cabal of financiers, people will help contain the damage caused by institutions in the future by refusing to get tricked by their schemes.

Frankly, Jeffrey, I doubt that enough people will wise up to make that scenario happen, but I would love it if they did. Even if my book and my efforts can’t save the nation, at least they can save a part of the nation smart enough to grasp its ideas and protect themselves.

For that, I’m very optimistic.

Thanks, Jason. I appreciate you taking the time to answer these questions.

*Affiliate Link

I received a copy of Charles Geisst’s newest book, Collateral Damaged: The Marketing of Consumer Debt to America*, from the publisher. As the subtitle suggests, the book is a history of consumer debt. I found it interesting and insightful.

After finishing the book, I decided to ask Mr. Geisst if he would answer a few questions for me. He obliged and the you can see the results below.

JLP: What inspired you to decide to write a book about consumer debt in America?

CG: Too much consumer debt has been created by securitization in the US and it was time to determine how much of a role it played in the crisis. Turns out it was significant.

JLP: What do you think was the main cause of the credit/mortgage crisis we experienced over the last couple of years? Was there one event that stood out to you as the main cause or was it a number of events?

CG: The main cause of this was ease of access to credit, from the lneding banks and credit card companies. But clearly it was caused by excessive securitization.

JLP: You talk about usury laws in the book. What are usury laws and do you think they should be brought back?

CG: Historically, in the US usury laws limited the amount of interest that could be charged on a loan, mortgages and consumer loans, although sometimes vaguely. The idea is to bring them back as one law on the federal level, limiting the amount of interest on credit cards and other forms of consumer interest.

JLP: Can another debt crisis be avoided? If so, how?

CG: Avoid next crisis by strict obedience to good lending practices and establish limit on consumer interest. Also, securitization must be effectively monitored.

JLP: What role do you think regulation plays in a capitalistic society? What areas should be regulated?

CG: Too broad to answer easily. Effective regulation on the credit creation process.

JLP: Do you think America is still a capitalistic society?

CG: Yes, capitalism is much more than unbridled, unregulated tomfoolery of the type we have seen over the last 20 years.

JLP: I have written quite a bit about the mortgage crisis. I know it is simplistic but I have always taken the stance that lack of personal responsibility played a huge role in this crisis. What are your thoughts on this?

CG: Yes, of course but it is too difficult to quantify and then qualify. Usually a political point made by conservatives.

JLP: Was it a wise decision for the government to get involved by bailing out financial institutions and some borrowers? Does this set some sort of precedent that the government will always come to the rescue?

CG: Government always has, except in cases of blatant criminality.

JLP: Where do you see the U.S.A. going from here? How long will it take us to move beyond this crisis?

CG: Hopefully, back to a simpler method of borrowing and lending, with less bells and whistles and exotic products. Probably take 5 to 7 years.

JLP: Thanks for your time.

If you are looking for a book that will give you a good overview of the history of debt in America, check out Collateral Damaged*.

*Affiliate Link

Why did you decide to write a book?

Without wanting to sound cliché, I never really feel like a made the decision. I had observed so many people suffering around financial issues, and barking up the wrong tree, as it were, that I felt compelled to write it. It was one of the easiest things I’ve ever done professionally.

What do you think is the number one reason people fail financially?

They don’t understand what payoff their financial habits are giving them. If they’re chronic overspenders, there’s a need that their purchases are filling, an emotional need, and buying purses or cars or new furniture allows them to feel good about themselves for some time. In order to change the financial habit, they have to replace the payoff with some other payoff that fills the same need. But most people never question what’s motivating their financial habits.

You say in your book that the ideal person would be balanced among the eight financial archetypes. How do you recommend a person obtain that balance?

It’s very difficult work, but very rewarding. It’s very hard to answer this question in a generalized way, which is why there are about 60 highly customized exercises in the book, so that each archetype can create the balance that they need. One way to say it, is that we often need to cultivate the positive attributes of the archetype which is most dormant in us. So for me, that’s mostly been the Innocent. Being willing to have faith and trust that things will work out, without putting quite so much focus on the numbers, given that I’m a Guardian/Saver/Empire Builder predominantly.

Which of the eight archetypes do you think is most prevalent in today’s society?

Pleasure Seeker and Innocent were prevalent until Summer 2008, which is why we’re in this mess. Today, it’s much more Guardian and Saver. People seem to be returning to the values of the ‘30’s – 50’s, but we’ll see how long that lasts.

How do you explain the archetypes to your clients?

I usually don’t. This is part of why I wrote the book, so that they could read the complete story about each archetype in there. As an example, I’ll more intuitively give a client ‘homework’ to spend more money on things which bring sensory pleasure, in the case of an overly frugal Saver, or have an Innocent hire a bookkeeper or sign up for an internet-based service like mint.com which shows them where the money’s all going.

What is the typical response from your clients once they learn about the different archetypes?

“Wow, I had no idea you had me so pegged.”

Do you ever have clients who deny the findings?

“Not really. The most I’ve had is someone who felt they couldn’t find themselves in any of them, which is usually a sign of the Innocent. Some people feel that they’re a balance of many, or that it’s constantly changing. Both of these are good signs.”

Once you know a client’s financial archetype, how do you cater your financial advice to fit the archetype?

Again, this is very customized. The Appendix of the book has specific financial planning recommendations tailored to each archetype, and it’s many pages, so it’s hard to summarize. But one example might be to have a Pleasure Seeker sell their vacation home and art collection and deploy that money in more income-producing assets (which don’t produce sensory pleasure), like stocks, bonds, or income properties.

Since writing the book, do you find yourself trying to figure out the archetypes of the people you meet?

Sometimes. It’s mostly intuitive though. If you go to my first MSN story, there’s a video of me walking around Central Park interviewing people and guessing their archetypes. Kind of humorous. The other stories there may give you some good blogging ideas too.

Finally, is it natural for a person’s archetype to change over the years or do people tend to stay the same throughout their lifetimes?

The healthiest people I’ve met with money are able to express different ones at different times. But there’s a whole class of people who, especially when the going gets tough, go back to their tried and true archetypes. Financial habits are hard to break, because unless we very intentionally try to cultivate those which have been dormant, they’ll stay dormant.

Thanks, Brent!

Also, I want to go ahead and announce the winner of the “It’s Not About the Money” book giveaway. There were forty-nine entries and the randomly-selected winner was commenter #31, Walter. Congrats, Walter. I hope you enjoy your book!

I have another giveaway coming up soon. Stay tuned…

Below is an interview I conducted with Liz via email. I thought her answers were very thoughtful and I’m very appreciative of her taking the time out of her busy schedule to answer them for me.

How long have you been writing about personal finance? How did you get started?

I’ve been writing full-time about personal finance since 1994, when I was a reporter at the Orange County Register. I’d done a stint previously as a business writer at the Seattle Times and had a degree in economics, but I’d taken a few detours (as a feature writer and a political reporter) before deciding that writing about money was what I really wanted to do. To get up to speed, I took the Certified Financial Planner training course after work at University of California, Irvine, which was grueling but well worth the effort. I covered personal finance for the Los Angeles Times for four years before leaving to write for MSN Money in 2002.

Besides writing your columns and books, what else do you do? Or, do you have time to do anything else?

I chase around after my 5-year-old and try to pay attention to my husband once in awhile.

I actually do a lot of radio and TV stuff these days, which is part of promoting the columns and the books. I have a regular hit on Fox Business and talk to the folks at Marketplace Money fairly frequently. The credit crunch and foreclosure crisis have offered a lot of opportunities to be a talking head!

I’m also co-hosting a savings contest, which is the first time I’ve done anything like this. It’s sponsored by FNBO Direct [more about that here], the online bank, and it’s kind of similar to the “America’s Biggest Loser”-style weight loss challenges. To enter, people submit a short video explaining what they want to save for, and the bank will pick five contestants and track their progress for six months. The five contestants will get dollar-for-dollar matching funds, up to $5,000, and the winner gets a spa vacation. The Web site for more details is Pay Yourself First Challenge, if you’re interested in checking it out.

You write a lot about credit-related issues. In your opinion, what is the number one reason why people get into trouble with credit?

I think it’s a tie between naivety and optimism.

Most people are basically optimistic—they think things will turn out all right. That’s a good thing, except when they stick blinders on and refuse to consider that things can (and will) go wrong. So they live paycheck-to-paycheck, or worse, and have no savings or cushion for the bad times. They use plastic or loans to pay for a lifestyle they can’t actually afford. They pile up debt and keep hoping something (a pay raise, a handsome prince, a lottery ticket) will come along to bail them out.

And many people are astonishingly naïve when it comes to lenders. They think if a lender approves them for a loan, they must be able to afford it. Or they carry balances on their credit cards and then are shocked when the issuer doubles or triples the interest rate on any excuse, or no excuse.

While we’re talking about credit, can you tell us a little about FICO 08? How is it different from the previous FICO version?

There are three big differences:

Authorized user information is no longer considered. With classic FICO, you could benefit from somebody else’s good credit history by being added as an authorized user to that person’s credit card. Credit repair outfits figured out they could persuade people with good credit to “rent out” their authorized user slots to complete strangers, and charge those strangers hundreds of bucks for the privilege. Lenders didn’t like that, so the formula’s been changed in FICO 08 to ignore that information—but it could wind up hurting folks who have little other history on their own except the card they share with a spouse or parent.

FICO 08 is less sensitive about opening new accounts. Fair Isaac (FICO creator) figured out that many of us have rather active credit lives: we refinance our loans or switch from reward card to reward card. Fair Isaac realized that such behavior doesn’t necessarily mean we’re riskier borrowers, so the new version of the formula punishes such behavior less.

FICO 08 is more sensitive about how much credit we use. I recommended in my book Your Credit Score* that people use 30% or less of their credit card limits at any given time. (It doesn’t matter to the scores whether you pay off your bills in full every month; what matters is how much of your limit you’re using when your issuer reports your account to the credit bureaus, and that’s typically the balance on your latest statement.) I think that’s going to be even more important as FICO 08 is adopted. You definitely don’t want to come close to maxing out your accounts.

In your opinion, what is the biggest misunderstanding people have about their credit score?

Another tie: people think they have just one score, and that it’s static. In reality, there are more than 100 different credit scoring formulas in use, and your scores change all the time, based on the underlying data in your credit reports.

The most-used scoring formula is the FICO. You generally have to pay to see your credit scores, and my opinion is that if you’re going to shell out hard-earned cash, you might as well get the same formula that lenders use. You can get your FICO scores for all three bureaus at one place: MyFico.com. Only one bureau, Equifax, sells FICO scores directly to consumers. The two other major bureaus, Experian and TransUnion, typically sell consumers something else, either their in-house consumer education score or a VantageScore.

Talk about the mortgage crisis is starting to die down somewhat. Do you think the worst is over?

No, I don’t. There are still a ton of exotic mortgages made to supposedly prime credit borrowers that have yet to reset. These are generally the option ARMs that allowed people to make payments that didn’t even cover the interest owed, let alone any of the principal. At some point, usually several years into the loan, these mortgages forcibly reset the payment much higher if you have been making only minimum payments.

As a result of the credit crisis, are credit-worthy people having a more difficult time obtaining mortgages?

If you’ve got good credit and a decent down payment, you should be fine. And “decent” seems to be getting smaller; for awhile during the worst of the crunch folks who had less than a 5% down payment were having trouble, but I’ve heard that with a good-enough credit score (700 or above) 100% financing has once again become available.

But it’s still true that mediocre scores will cause you problems. If your scores are in the mid-600s, you’re not going to have as many choices and you’re likely to wind up with a more expensive mortgage than you might have gotten before the bubble burst.

You wrote awhile back about how you and your husband had become millionaires based on your net worth. Has becoming a millionaire changed your attitude towards money?

Not at all, as far as I can tell. My husband jokes once in awhile about waiting for his Porsche 911 to show up in the driveway, but that’s not gonna happen any time soon!

Who are some of your favorite personal finance gurus? Who do you pay attention to?

You know this: we personal finance writers are as independent as cats. The list of gurus I ignore is a lot longer than the list of the folks I follow!

But I respect John Bogle a lot; he speaks the truth about investing and the enormous impact of fees on your returns.

Others I like include Chuck Jaffe of MarketWatch, Ilyce Glink of ThinkGlink.com and my former colleague Kathy Kristof at the Los Angeles Times. All three are longtime journalists with deep knowledge of the topics they cover. They’re also friends, and I know them well enough to know they’d be a little appalled at being referred to as “gurus.” But they’re smart and they know their stuff.

I don’t invest in individual stocks, but if I did I’d pay attention to what Jim Jubak has to say. He’s my colleague at MSN Money and his track record is impressive. He’s also a seriously smart guy.

I have been blogging about personal finance for nearly four years. Since I started, personal finance blogging has exploded in popularity (at least in the number of personal finance-related blogs). Have you seen a surge in popularity that can be traced back to bloggers?

I’m not sure I can answer this one. I’ve seen a steady increase in interest in personal finance over the whole time I’ve been writing about it. How the advice is delivered has definitely changed, from books/magazines/newspapers/newsletters to personal finance sites and blogs.

I know that traffic to MSN Money keeps growing stupendously year after year. (It doesn’t hurt that MSN is the default home page for the browsers shipped on most PCs!)

I think people really like the interactive nature of blogs. Although most people who read don’t comment, they know that they can. A blogger also may seem more like a “real person” and someone they can emulate, compared to an expert up on some pedestal.

What I’d like to see is more change in the macro money metrics that would tell us our message is getting through. Most people are saving for retirement, which is a good thing and something we may be able to take partial credit for. But there are still too many people carrying balances on their credit cards and too few who have adequate financial flexibility (which I define as emergency funds plus access to credit). People still use payday lenders, get their furniture from rent-to-own outlets and cash out their 401(k)s when they leave their jobs. As long as there’s that kind of behavior going on, we’re going to need to keep working to get the message across.

That concludes the interview.

I have to agree with her last thought. We have a lot more work to do! As Americans, we have to inspire people to take an interest in their financial wellbeing. Unfortunately, the people who need to be reading this stuff don’t typically hang out on personal finance blogs or read finance-related articles. What can we do to change this? That’s a good question.

Once again, thanks to Liz for the interview.

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It has been two years since I last interviewed you. What have you been up to?

I’m still writing my syndicated column. But I left the Dallas Morning News and started AssetBuilder, a registered investment advisor firm.

In that interview, you mentioned that you were working on another book. Is it finished? What’s it about?

Simon & Schuster just released Spend ’til the End* on June 10th. Like The Coming Generational Storm*it’s a book economist Larry Kotlikoff and I wrote together. Spend ’til the End*is grounded in consumption smoothing— the idea that we all try to maintain a smooth and level standard of living throughout our lives. While the idea seems obvious, achieving a level standard of living isn’t easy. Worse, conventional financial planning virtually guarantees that you won’t be able to do it.

Conventional financial planning, for instance, virtually always tells us that we need to replace 70 percent to 85 percent of our final earnings at retirement. This is entirely bogus. It ignores fundamental realities like debt and children. It also ignores the fact that we can choose to spend down some of our savings once we are retired.

Unless you have a very high income, paying off your house and other debt, modest savings, and Social Security will allow you to maintain your lifetime standard of living. I’m talking about at least 90 percent of all households in America.

Here’s a link to a column demonstrating the idea: The N Factor and Retirement Planning

You have also become involved in a new advisory business called AssetBuilder. Can you give us a little background on how you became involved? What’s your roll with the company?

I’m the Chief Investment Strategist, primary communicator and researcher. AssetBuilder was conceived over dinner with Kennon Grose, a friend and former Microsoft executive. We both liked index investing and wanted to build an efficient, low-cost delivery system for asset management. We believe AssetBuilder is a significant challenge to what I call the “legacy distribution system”— the complex of brokerage and insurance products that takes so much of the investors return in worthless fees.

We knew there were lots of do-it-yourself investors out there who understood index investing but seldom executed in a timely way. We also knew that optimizing risk using mean variance optimization was more than most people could do.

That’s what AssetBuilder does. We build mean variance optimized portfolios using what we believe are the best index funds available— the ones run by Dimensional Funds Advisors. And we do it at very low cost (45 basis points down to 25 basis points).

We figure that every $1 of revenue we make takes about $4 or $5 out of the conventional financial services industry— and puts it in the pocket of the investor, where it belongs.

How’s the business coming along? Have you had a warm reception?

This is an idea that people get. As of this May we had $124 million in assets under management. That’s double what we had only 4 months earlier. We now have about 300 clients in 24 states.

Growth like that is a good indication of having an idea whose time has come. I don’t think an Internet based advisory business would have worked as recently as 5 years ago, but it clearly works today.

What type of client is a good fit for AssetBuilder?

In terms of assets, our clients cover a really broad range. What they share, however, is a common sense approach to investing. They invest for probable returns, not possible returns. Possible returns is what Wall Street sells. Sizzle. Not steak. AssetBuilder invests in efficient index funds, delivers major diversification, and focuses on building efficient risk/return portfolios.

We believe our focus on the risk element will make it possible for those who are drawing from their portfolios to draw somewhat more.

Are you still writing your column for the Dallas Morning News?

The Dallas Morning News is now a syndication client rather than my employer. I now write two columns a week rather than three. I do a good deal of additional writing on the forums we have at the AssetBuilder website.

Now let’s talk a little about the economy…

The housing market has taken a beating over the last year or so. Are things bad in the Dallas area? Do you think the worst is over?

Dallas has foreclosures but it was never part of the price bubble that has caused so much misery in Florida and California. Dallas also still has significant net in-migration. You can see how much by getting a U-Haul quote— it’s expensive to move from San Diego to Dallas but the same truck will cost a fraction if you happen to be moving from Dallas to San Diego…

How did it become such a big mess in the first place?

Three major factors caused the problem:

1. Congress eliminated taxation of home gains up to $500,000 for a couple. That made housing a tax-free investment for most people. This isn’t talked about very much, but when you reduce taxes on something, you increase its value;

2. Securitization of the mortgage market broke the chain of responsibility. No one in the profit chain had any consequences for bad loans. It was the toilet assumption— flush it, and it will go away— in full operation;

3. Reduction of lending standards because they stood in the way of ever-expanding profits for every part of the debt-chain.

What are your thoughts on the steps that the government has been taking to clean up this mess? Are you a fan of the bailout?

It’s all too little, too late— government as usual. I’m not a fan of any bailout. We need to clear the markets as soon as possible. That means thousands of people who should never have bought houses, whether to live in or for investment, will eventually lose those houses to foreclosure. But it also means that thousands of other people with better credit will have the opportunity to buy those houses at reasonable prices.

Last question: How high do you think gas prices can go before they have a negative impact on the economy? Or, are we already there?

We’re already there. High gas prices (and energy in general) act like a tax on the economy and reduce consumer spending power. The same high prices are also reducing the value of vehicles that aren’t efficient, so millions of people will be upside-down on their vehicle loans. That’s a double hit to future spending power. You won’t hear it on CNN but millions of Americans have far more at risk in the used car market than they have in the stock market…

That’s the end of the interview. One thing really stood out to me and that was Scott’s first reason for the housing crisis: Congress eliminated taxation of home gains up to $500,000 for a couple. I never thought about it but that makes a lot of sense. I’m not saying there should have been a tax on the gain in the first place but obviously removing the tax sort of opened the floodgates.

A big thanks to Scott for taking time out from his vacation to answer these questions.

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I have always been skeptical about the rating services. I think there was tremendous reliance on rating services. It is irresponsible for a giant financial institution to let someone else tell them the quality of the investments in their portfolio. Asking the rating agencies, who get paid to rate each of these CDOs, was like asking the barber if you need a haircut!

Good point. However, I don’t think the financial institutions had any idea what their portfolios were worth!

The other interesting quote came when Bogle was asked where he thought the Dow Jones Industrial Average would be ten years from now:

Well, the Dow is a peculiar piece of work. The Dow yield is 2.2 percent now, vs. the S&P’s 2 percent. Since I’m expecting a 6 percent to 7 percent return on stocks, the Dow ought to grow at 4 percent to 5 percent a year. So over ten years, growing 4.5 percent a year, it would grow by 55 percent and so it would be slightly over 20,000, give or take. But anybody who is expecting that ought to be prepared for a lot of bumps along the way.

I’m not a betting man, but if I were, I would bet (justified or not) that the Dow would be higher than that in ten years. This is pure speculation on my part, but I just think there’s a lot of foreign money out there and that money is going to prop up our stock prices.

Finally, did Bogle change his rule of thumb that states that a person’s bond allocation should be equal to their age? For example, a 40-year old should have 60% in stocks and 40% in bonds. When asked how a person who was 20 years from retirement should invest, Bogle said (emphasis mine):

People are retiring later in life nowadays. I’m 13 years past 65, and I still have plenty of energy to work every day. I got up at 5:30 this morning in New York and was ready for an 8:30 meeting in Philadelphia. If I can do it, I don’t see why anyone else can’t.

Take someone who is 45. They should be 70 percent stocks and 30 percent bonds. People think I’m being too conservative, but I would remind them that corporate earnings grow at about the rate of our GDP. Corporate after-tax profits as a percent of GDP have gone above 10 percent for the first time in history. Normally they are 6 percent of GDP. I don’t look for that to go any higher.

Hmmm… Interesting stuff. Be sure and read the rest of Bogle’s interview in the 2008 Fortune Investor’s Guide.

1. How would you define what you do for a living?

I make people uncomfortable for a living. But I do it in an entertaining way. I remind people that they could do better if they wanted to do better. I show them that they already know exactly what it takes to be successful but they are too lazy to do it. I point out that their life and their results are their own damn fault and it doesn’t do any good to blame anyone other than the person looking back from the mirror. I remind people that life and business is simple and encourage them to uncomplicate things. It makes people uncomfortable to be reminded of these things because it leaves them no place to turn except back to themselves. However, I think it is empowering because it is a reminder that anyone can be successful and that it is up to them to make that decision. And never forget, that I do it in an entertaining way – you couldn’t be this caustic or in-your-face and get by with it if you weren’t also funny!

2. What’s your favorite aspect of your job? What’s your least favorite part?

My favorite part of what I do is watching people lean back like I have just slapped them when I say something particularly caustic like, “If your life sucks, it’s because you suck!” They will literally lean back in their chairs away from me. Then I enjoy watching the line sink in, registering in their brains and see their positive reaction as they lean back toward me indicating their buy-in to the line and the idea. And they are usually laughing when they do it. People aren’t used to brutal honesty so they see it as abrasive at first take, then realize that they think the same thing and embrace the whole concept. It’s the shock and then the acceptance that is fun to watch.

Easily the worst part of my job is the travel. I have been on the road 250 plus days per year for the past 15 years. Travel has always been challenging but it has gotten really bad this year and frankly, I’m exhausted by it. Therefore, I’m cutting back some on the speaking schedule from this point on. I’m getting too old and mean to do a different city every day.

3. Who are some of your influences? What’s you favorite book on the subject of personal growth?

The person who influenced me the most is Jim Rohn. His teaching is about life principles, which is what I have tried to emulate in my career as well. I have listened to his audio series, Take Charge of Your Life over one hundred times. I don’t really see life as a tactical journey but more as a journey of principles. When you get the principles right, the right tactics follow naturally.

In the past eighteen years, I have read nearly 4,000 books. I have read books on every aspect of success. Most weren’t very good, but there were a few gems that influenced me greatly. And I have also listened to over 10,000 hours of audio and watched over 2,000 hours of video of the world’s greatest speakers and thinkers. I can’t really give you one great book, but I can give you a few that might surprise you. While I am a bottom line kind of guy, I tend to read stuff that makes me think, not things that just give me a list of do’s and don’ts. Here is a great little list for anyone who wants to change their life: Manifest Your Destiny by Wayne Dyer, The War of Art by Steven Pressfield, The Science Of Mind by Ernest Holmes, First You Have To Row A Little Boat by Richard Bode.

4. What do you think is holding most people back from accomplishing their dreams?

You answered the question IN your question. Dreams are a waste of time. Dreams don’t come true, plans come true. I want people to forget their dreams and get some amazing plans. Plans are written down, with specific steps and time frames and actions.

5. You are known as the pitbull of personal finance. How did you get that nickname?

Actually, I have trademarked the moniker, The Pitbull of Personal Development®. Finance is just an offshoot of the personal development approach I have. Money is easy when you get the rest of your life right. I am actually not a finance guy or a business guy as much as I am a personal development guy. I got the nickname because I believe that most motivational messages come across like a really old pet poodle: sweet, cute and without teeth. Kind of enjoyable to be around but no lasting impact. My message is simple: personal responsibility. I believe that all human suffering can be traced back to this one simple concept. That is my message and I grab on fast and hold tight and won’t let go – like a pitbull. The name fits my style and sets me apart from the crowd.

6. Tell us about your show, Big Spender on A&E. What’s your mission on the show?

The show is about people who overspend their way into a financial disaster. They have wrecked their life and the lives of their family with their overspending. I ambush them in the midst of their shopping and in my warm, sweet, loving, nurturing way point out the error of their ways. (You can insert laughter right here!) I force them to confront their problems and put them on the right track and then go back a month later to check on their progress.

I show people that their real problem is misplaced priorities, not a lack of money. You spend your money on what is important to you. Period. If looking cute is the most important thing in your life, then you will spend your money at the mall and abandon your family and your other responsibilities along the way. When the fancy car is more important to you than your kid’s college, your money will go toward the car, not the savings account. See how simple this is? Life is like a crime novel, when you want to know the culprit, you simply follow the money. I also show people how simple it is to get out of debt.

7. Regarding Big Spender, why do you think people get into financial trouble?

Money that is easy to get, is easy to forget. In other words, credit is easy to come by these days and no one is forcing accountability in the collections of that money. We have sadly reached the point where we view the consumer as the victim in the collection of money. I see it differently. When you sign the contract for the credit card or to open the store charge account, you agree to pay a certain amount on a certain date every month. When you do it, everything is fine. When you don’t, you have lied and shown you aren’t a person who keeps their word. The punishment is that the interest rate goes up and your credit report takes a nasty hit. Don’t do it for a few months and someone will get on the phone and ask for their money. And never forget, it is their money, not your money. They have every right to go after their own money that you agreed to pay them. This is one more evidence that most money troubles aren’t really money troubles but are bigger issues. The problem described here is one of a lack of integrity. People get in financial trouble because of a lack of integrity and misplaced priorities.

8. What was it like to be on an episode of CNBC’s The Millionaire Inside? Will you be returning on future episodes?

Filming the show was great and allowed me to spend time with other “Money Mentors.” It was a reminder that what I do is very different than what others in the finance business do. I can’t teach you how to get rich. But I can teach you how to stop being broke. That is my area of expertise. The others are investment gurus. I’m clearly not.

I have done lots of television. I’ve been on CNN and Fox News and The Today Show and dozens of local shows around the country. My A&E show, Big Spender is different in that there is no studio audience or even a studio, it’s filmed on location in stores and people’s homes. The Millionaire Inside had a big studio audience in a major television studio so it was a different experience for me. It was fun and exciting, especially for a kid from Muskogee, Oklahoma who grew up dirt poor.

I am returning for an all new episode on July 28th entitled, “Get Inspired” that will run through the month of August.

9. Can you give us a sneak peek of your upcoming book?

My next book, You’re Broke Because You Want to Be: How to Stop Getting By and Start Getting Ahead, will be released in December by Gotham Books, a division of Penguin. The book is a short little how-to book with specific tactics to use when you are in real trouble. This isn’t an investment book or a get rich book. This is a “Holy crap, I am in trouble and I need to fix it TODAY!!!!” kind of book. This book is for people who are circling the drain and have no time for anything except a plan that will get them on the right track, right now. It is actually a work book with lots of exercises and worksheets to give people a clear view of just where they are financially. It has stories from the real world and from my own life that readers will find entertaining and valuable.

Most people won’t want to admit that they need the book but they will all admit to knowing someone who needs it. Trust me, if you owe money, you need this book. It’s practical, it works and it’s a short fun read. I’m a regular guy who grew up poor, got rich, lost it all, went bankrupt, and then worked his butt off AGAIN to become a multi-millionaire. I know what I’m talking about because I’ve done everything in this book.

10. Finally, Rush Limbaugh had a line of ties. Are there any plans for a Larry Winget line of shirts and boots?

I pride myself in my uniqueness and if I saw other people dressing like I do, then I would have to do something else! For now, I don’t think there are many who would be willing to dress like me, but you never know! So to answer your question, no Larry boots or shirts are in the works!

And that marks the end of the interview. I want to thank Larry for his time and wish him the best. I hope you (my readers) enjoyed this interview.

What did you do before you started Buttoned Up?

I was a CPA at Ernst & Young, then got my MBA at University of Michigan and then worked for 14 years at CPG companies (e.g. General Mills and Unilever) before doing my own thing.

How did you come up with the idea for your organizational products?

Sarah Welch (My partner) and I worked for 15 years marketing to women. The need for women to get organized was (and still is) huge and there are not many products out there that make it easy. That is what we try to do….making getting organized easy so you can get on with the rest of your life.

How do you find clients?

Word of mouth and referrals. We have a great team at Buttoned Up. All are dedicated to what we are trying to accomplish.

Have you always been an organized person?

I am not by nature an organized person. I am like most women….I get organized because I have to in order to get on with the things I prefer to do (e.g. spend time with my family) My house is not perfect, my closets are not color coordinated.

What’s it like co-founding a company with friends?

Wonderful. Sarah and I are very lucky to have grown closer as friends by working together. There is also an opportunity to be very honest with each other because you know one another so well

What was the hardest lesson you had to learn about starting a company?

Everything no matter how great, has unanticipated costs, delays, etc…. We learned many lessons in our first 18 months that cost us time and money but we learned a tremendous amount.

How long did it take you to get your company’s products in Target stores?

2 years from when we started Buttoned Up.

What advice do you have for aspiring entrepreneurs?

Do not give up. People will tell you what is wrong with your idea, why its already been done (there are no new ideas), etc… If you believe in what you are doing, keep at it and you will find success.

What motivates you?

I love the challenge of making products that will help women get organized and that will really mean something to them. There is no greater high than when people write or call and say they love our products.

Finally, I noticed that your bio on the company website mentions that your husband is disorganized. Is this a challenge for you?

Yes, but we have been married 15 years so in each house we live in, he has his own messy space (a closet, extra room etc…) that way he can be messy and I don’t have to see it.

JLP: What particular money skills do you see older kids (teenagers) lacking these days?

SR: Credit cards and the inability to even balance the check book. Credit is pretty easy to come by for 18 year olds, especially when banks are hawking t-shirts and Frisbees on campuses in exchange for filling out an application. It’s a slippery slope. Credit cards are a great, convenient way to buy stuff, but young adults often don’t have the money to repay the bill. That’s why we’re seeing a big spike in the number of young adults filing for bankruptcy.

I don’t think kids should have plastic until they can manage cold hard cash – balancing their check books, salting money away, keeping track of debit card expenditures.

JLP: Recently you wrote about a 12-year old entrepreneur. What other cool business ideas are kids coming up with? What about summer jobs for kids?

SR: Many kids are multi-talented and have entrepreneurial streaks. I’ve interviewed kids who run dee-jay businesses for teen dances, bar and bat mitzvahs and the like. Some kids love sports and become soccer referees or baseball umpires making $20 a game. A high school neighbor runs a basketball camp for a handful of kids every summer on his drive-way court. And there’s good money to be made babysitting and lawn mowing, if you are organized and punctual and responsible. A high schooler I met last year actually has his own recording studio and wants to parlay that into a career after college.

If kids want to earn money, summer is the time to do it. There’s no interference with school. The key is to find a job that they’re really interested in, so the goal isn’t just to make money. It can be a long summer for mom and dad if their son or daughter drags their feet every day about going to work. Summer work is tough, especially with the competition for jobs.

JLP: There’s been talk about the lack of personal finance skills in high school and college kids. Are any schools instituting educational programs to help address this issue or is it mostly up to parents to do the educating?

SR: Fortunately, many teachers are finding ways to teach personal finance. Whether it’s incorporating money management or economics into a math or history lesson, or playing the stock market game or bringing in a Junior Achievement volunteer to teach business, more kids are getting exposure to these life skills. Parents should not assume that their kids are getting all they need from the schools. It still starts at the front door of your house. Be a good role model with money, find everyday moments to teach your kids about dollars and cents and encourage them to make their own decisions – including letting them make mistakes.

JLP: Do you have any personal finance advice for young couples planning to get married? Should they seek financial counseling before they get married?

SR: Don’t forget to talk about money – your goals, expectations, values, career options. Also discuss the nuts and bolts, such as who will pay the bills, what will be shared responsibilities, how many checkbooks you’ll have etc. I would also urge couples to seek financial counseling or meet with a planner before marriage. Money problems right off the bat can doom the marriage. Just check the numbers.

JLP: Finally, are there any good books that teach kids personal finance basics that kids might actually want to read? How about books for parents?

SR: For young kids, start with some of the Berenstain Bears books. For high school and college age kids, I recommend Financial Literacy for Teens by Chad Foster. For young adults, Please Send Money by Dara Duguay offers many lessons in money management.

For parents, a personal favorite is Raising Financially Fit Kids by Joline Godfrey, or A Penny Saved by Neale Godfrey.

Thanks Steve!

Remember to catch Steve’s Sunday column in the Kansas City Star.