The Ramsey Show - App - Advice for Teaching Your Kid About Investing (Hour 3)

Episode Date: October 30, 2019

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🎵 Live from the headquarters of Ramsey Solutions, broadcasting from the Dollar Car Rental Studios, it's the Dave Ramsey Show, where debt is dumb, cash is king, and the paid-off home mortgage has taken the place of the BMW as the status symbol of choice. I'm Dave Ramsey, your host. This is your show. Thank you for joining us. Open phones at 888-825-5225. That's 888-825-5225. Jose is with us in California.

Hi, Jose. How are you? Hey, Dave. How are you? Good to talk to you. You too, sir. How can you? Good to talk to you. You too, sir. How can I help? I have a question.

I'm 49 years old, and I have two daughters, and one of them is 22 and the other one is 19. And I started saving for them with a Vanguard UTMA account many years ago. And both of them total around $160,000. One of them already graduated, but we were able to cash flow the four years she's graduated. She kind of knows about the money, but she kind of doesn't, so I'm kind of in the middle of what should we do with that. And then the other one is 18. We're in her second year. We're also cash flowing that. My question is, what do you think I should do with that money? Should I, I'm a baby step six. I still need to pay off my house, which is around $40,000 left, which I should do in the next two to three years. But I'm just kind

of, I'm at that point now where I need to know what I'm going to do with that, especially that first half of the 160. Yeah. Well, it's not yours. The UTMA is Uniform Transfer to Minors Act. You transferred the money to the daughter's name. And so legally and tax-wise and everything else, it's her money. And so the only time I would do something other than just give it to her would be if she was doing something completely irresponsible or misbehaving and you'd be funding her heroin addiction or something. And in that case, I would just hide it from her, but that would be illegal

because it's not your money, it's her money. When they be illegal because it's not your money it's her money when they're 21 it's theirs yes and so you can't really move it back into your name so are they both uh being responsible young women oh yeah they're they're on they're on the right path they're completely uh uh doing the right things and like i said i was just at that point where i don't i didn't know exactly i mean i know it's in their name so that's what i was just thinking yeah technically i think the thing you don't want to do from an emotional standpoint or you want the money to be a blessing to them they're not apparently they're not aware of it right uh yeah they're i told them that they had their college paid for but um they were there they've

been working since they've been 16 years old both of them so we cashed for it 50 50 all four years the first one and we got through it she's done no no student debt and on the second one or we're halfway through the second year in the same situation yeah well the way the discussion sounded with us was we told them earlier than you have that the money was there and exactly how much it was and we showed them this money's there this money's there this money's there um and then we didn't tell them that we didn't use it for college we cash flowed college like you did and so the utmost were there at the end of college and we just said okay, okay, this is your, in a sense, this is your graduation present.

It's already in your name, and we're going to to the whole view of money and so forth, so that I didn't have the sense that they were just going to cash this out and go, you know, blow it on a weekend in Vegas or something. We knew that they would take this very seriously and that they would, in a sense, the money would have some weight to it rather than a I hit the lotto woohoo moment. And so somehow you handle the discussions with the girls that way over the next year. It's not the end of the world if you take a little bit of time to hand it over to them, even if they're over 21. The one that's graduated and over 21 is the one that you've got a little more pressure on.

But 18-year-old, it's going to be three years before you have to for it serves anyway it's yours you're in control of it until then so i would just start talking to her and say you know when you get out of school there's going to be some money here if available for you to make some steps into your future if you are being responsible with money and if you're being responsible with your life and you're you know you're living a moral life and so forth. But I'm not going to allow this money that I put in there to bring harm to them by financing their misbehavior. And so, I mean, I would risk the legal implications of not giving it to them if that were the case. But I don't think you have that case.

I didn't have that case. And so that's how I approach it. But it's all out of an act of love. But I think a gradual discussion of what is there and the expectations that come with that, that I expect you to be responsible. I want you to go through Financial Peace University or whatever so that they have a basis, a way to handle the money, a way to view the money, and it's not just a surprise. A big, hairy surprise when you're 22 years old. It's very difficult for that not to feel like she hit the lotto. So I would gradually begin the conversation over the next year and then make the transfer.

Chadwick is with us in North Carolina. Hi, Chadwick. How are you? I'm doing great, sir. How are you doing? Better than I deserve. What's up? My wife and I are on baby step two,

and one of the ways that we're cutting our expenses is we live in a renovated RV, and we actually love it. We really enjoy it. We're in a campground right now, and the only downside is we're surrounded by people, and we would love to have some privacy and peace if possible. I saw a piece of land recently that is $20,000. Now, I understand there's a lot of unknown expenses that come with land, and I would ordinarily never bat an eye at it, except for it's graded, it's cleared, utilities are set up, and there's a septic tank, which has been inspected recently.

The land could be purchased, and we could put our RV on it and start living there right away. Now, I know that you tolerate mortgages, and I was wondering if you would tolerate a loan to purchase this land, since it would almost be acting as our mortgage. It would cut our payments in half, and it would be paid off in three years. Yeah. I would not do that until you're out of debt. Okay. Yeah. When we talk about buying a house is we talk about buying that after baby step three.

You're out of debt, and you have your emergency fund in place. How much debt do you have? $48,000. And what's your household income uh thirty thousand this year it'll be uh forty thousand next year when i have some residuals from my new job kick in okay so how long does it take you to pay off 48 um i haven't done the math on it yet that'd be very important to do because that would affect how you view this answer if you felt like it was 10 years then you're probably thinking i'm crazy to tell you to delay if you think it's 10 months which i don't think it is either then you'd be crazy not to delay it's somewhere in between those two and i'm thinking you're

probably you know depending on what on what the curve on your income is, 30 to 40 to 50 to 60 would be a good curve, then you're probably done in two years if you're looking at that. If not, you're probably done in three. And I want you to stay the course and be debt free and have your emergency fund in place before you start talking about buying real estate on a mortgage. Are high health care costs getting you down? Are you confused trying to navigate your options?

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Christian Healthcare Ministries is a proud sponsor of Dave Ramsey Live Events. chministries.org. our question of the day comes from blinds.com they have a 100 satisfaction guarantee means even if you mismeasure or you pick the wrong color, they will remake your window blinds for free. Free samples, free shipping, and with the new promos they run every month, you'll save even more. Use the promo code RAMSY to get the best deal. Cheryl's in Michigan. My father passed away recently, and my stepmom sent information, including a death certificate,

to the credit card companies where he had acquired debt. Her name was not on the credit cards. She has received threatening letters from lawyers regarding the remaining balances. Is she responsible to pay off his debt? Your advice will be so much appreciated. No. She has no responsibility for that debt whatsoever. Now, his estate does. When you die, anything that you own has to stand good for anything that you owe.

And so your assets have to offset your liabilities. So, for example, if he has $10,000 in credit card debt and he and your stepmom owned a house together that has $100,000 in equity and she wants to keep that house, well, half of that equity is in his estate. $50,000 of it has to stand good for his debts. If there's $100,000 equity and they own the house together. And so if she wants to keep the house, she'll have to pay the credit card. Because his assets, his $50,000 equity in the house, has to stand against and good for his debts so in order to keep that she would have to clear his debts so for instance it's easier to understand

if you just think about if the person um did not was not married when they passed away and so if your dad lived in an apartment, had no money in a bank account, did not own a car, and was living off Social Security, and he died with $100,000 in credit card debt, the credit card company gets zero because his estate is worth zero. There's nothing to sell to pay his debts.

But if he owned a fifty thousand dollar item and you as his daughter wanted to keep that item nostalgically then you're going to pay fifty thousand dollars for it because it has to go the market value of it has to go against his debts, and that's what we're looking at. So I'm guessing, I don't know. It depends on if he and your stepmom had been married for a long, long time, I would guess that they probably owned some things together. She can't just walk off with those things and then not address his debts if they've been married for a year and their stuff is still very separated as a result and they really have anything they

own together doesn't have any equity in it to amount to anything then there's nothing to pay his debts then you can tell these lawyers or whoever they are to jump in the creek because she is not on these credit card debts. She's not liable. His estate is liable. Hope that makes sense. And that's what you always look at in these situations. But, yeah, I'm going to guess and say in this situation that they hadn't been married very long and that there's not a lot of assets that are joint-owned that she's trying to keep.

But that's how it works if she is. All right, Todd is with us in California. Hey, Todd, welcome to the Dave Ramsey Show. Hey, Dave, thank you for taking my call. Got kind of a conundrum here. I just discovered you within the last month or so and trying to get things going. Good. I work for a government entity in the state of California,

and there's a good chance I could be having to medically retire between now and sometime in the next five years, and I'm only 40 years old. I'm trying to get everything situated for me and my wife and our three kids. She's actually listening in the other room taking notes. I'm about to receive a settlement check for workers comp and I want to use that to pay off our roughly $18,000 in debt that we have outside of our vehicle payment. And we owe $42,000 on the vehicle. I have roughly $30,000 in a 457 plan as well as the retirement through the state retirement system. And I also get a VA disability pension as well. So what's your household income in a year?

Right now it's 90 through employment with another 40 from, give or take 40 from the VA. Mighty expensive car. It's, yeah, had to pack three kids into it. You can pack three kids into a $15,000 car. I get that. That's why I never bought myself a new truck. Yeah. With that, after the $26,000k that i'm gonna get initially from the

settlement i'm gonna get about 1100 a month after that for about 24 months are you out of work no no i'm still employed but i'll probably be getting forced to medically retire between sometime between now and in the next five years why uh because of my you know injuries i've sustained from work okay so you're but you're only four but you're only 45 years old 40 40 so what are you going to do for the rest of your life that i have no clue um one thing i do know is if it does come we need to it's coming i know it's coming and that's why I kind of need help and guidance or someone to kick me in the rear to kind of force me into a direction to get this going for my family.

Five years from now, your children are going to be hungry. Yes. You need to have a career path starting right now, ready, set, go. Okay. Like, I'd be really, really, really concentrating on this because the medical retirement might come in 36 months instead of 60. Gotcha. And you will be screwed, brother.

And we also live in state-provided government housing, so I pay $450 a month in rent. Yeah. And I know that when it does come, we do want to leave the state of California so, one, we're not paying ungodly cost of living. Well, and maybe you short circuit and and unless there's some kind of a benefit for waiting it out financially but let's figure out what we want to be in our next chapter act two the curtain goes down the curtains go up and what are we going to do after we take that first bow this is your

encore career and the good news is you're a lot smarter than when you picked the last career. Yes. So I'm going to spend some time on the back porch with a cup of coffee and with the love of your life thinking about what I'm good at, what makes me smile when I'm doing it, and how can I make a big pile of money doing that. Okay. And do I need to big pile of money doing that? Okay. And do I need to go take a class or six?

Do I need to get a certification? What do I need to do? Where are we going to do this? Am I starting a business? Am I going to become a violinist? I don't know what you're going to do. I don't care, but you need to really be focusing on that because it's not a matter of if now it's just a matter of when am i wrong yeah no you're you're right and when it

does happen between the disability retirement and the va it'll be between six and seven grand a month coming in yeah so it'd be a very opportune time to already have done this preparation work to make the transition and not go from income to only disability income. I mean, what if you had that six or seven grand coming in and you had a job lined up in the new career or you had your business idea ready and you're ready to move to another state in the whole deal, right? Okay. So let's think about it that way meantime i'm going to go ahead and move down in car because i want you to be free listen if you're sitting there with no debt and a pile of money while we're making all these decisions it changes the decisions gotcha and right now this car is out of line. It's not all the way into the crazy zone, but it's getting close.

And so, yeah, I want you in a $15,000 kid hauler right now, not a $42,000. Let's get them all paid off. You can pay off everything but $26,000 with this one. You can pay off the first $26,000 with this check. And then let's develop a good long-term game plan. Hold on. I'm going to send you a copy of Ken Coleman's book, The Proximity Principle, which will help you get into the career you love. This is the Dave Ramsey Show. I'm out. Suzanne is with us.

She's in North Carolina. Hi, Suzanne. Welcome to the Dave Ramsey Show. Hi, Dave. Thank you for taking my call. Sure. What's up? Well, unfortunately, my mother died this year, and I have received an inheritance.

I have paid off my house today, which is a wonderful feeling. Amen. I've met with some smart investor pros, and they advised me not to pay my house off. But I have listened to you for years, and I did not feel comfortable with that. I'm sorry, you talked to one of our SmartVestor pros? Are you confused? No, I'm not. Okay.

It shocked me. Well, when you're done, I want to know who they are so they're not SmartVestor pros anymore after this conversation. Well, my husband's a pastor, so he is allowed to have tax-free housing. I don't care. Yeah, I thought the same thing. Okay, so you paid off your house. How can I help you?

So I'm going to pay off my car next week, and that will take care of the cash amount that I have. So what I have left are two annuities that my mother has. One for $29,000, one for $97,800. The smaller one is non-qualified. No, the smaller one's qualified. The larger one is non-qualified. so i need to know what to do with these two accounts well um you'd have to unpack the annuity and exactly what's involved and we're going to send you to a different smart investor one that i can trust um because the one you used to go to is not going to be anymore and then once you understand what the implications are, the qualified one you're probably going to roll to an IRA.

It may end up being an inherited IRA situation. And then the unqualified one, I'm going to try to liquidate it and just use it as an investment from there. But I doubt that you're going to want to stay in either one of these unless you need to wait out a surrender charge or something in one of them. But I'm not a big fan of annuities in most of these situations. I mean, there's a time and a place you can use them. But with the surrender charges being what they are and the extra fees being what they are in today's world, they're redundant in a lot of these cases.

So hold on. I'm going to have Madison pick up. We're going to get you connected up with a different SmartVestor Pro, and we need to know the name of the one that you used so that we can correct that. Hey, thanks for the call. God, that's frustrating. We spend millions of dollars a year. I've got a staff of 140 people that deal with these 3,000 to 5,000 ELPs and SmartVestor Pros. And we're really clear with these people.

If you want our endorsement, don't give advice that's contrary to what we're saying. It causes a lack of integrity. It's an inconsistency. And, you know know people are just stupid aggravating open phones at 888-825-5225 mem meme mimi mimi is with us in new york hi mimi how are you good afternoon mr ramsey thank you for letting me speak. Sure. How can I help? So, Mr. Ramsey, I have a property in New York, and if I sell this property, I am going to net between $200,000 and $250,000 from the sale.

And I am wondering if I, and I have a student loan debt of $185,000. Good Lord. Are you a doctor? No. No, but school in New York is very expensive. It's not that expensive. What's your degree in? I mastered in, I have a double degree in organizational management and entrepreneurship from a top school in New York.

Yeah, great. I'm not too great. So what's your household income? Well, this year it's been a rough year, so I will clear $150,000. Okay. Well, that's good news. Okay. Would I sell a piece of property to pay off $185,000 in student loan debt? Yes, I would.

Well, Mike, I knew you would say that, but my question was, could the alternative to that be putting the money in an index fund and using the interest to pay it off over, you know, say like 10 years. Let's pretend you could borrow a million dollars in student loans and you would invest them in an index fund and use that money to pay it off in over 10 years. Would you do that? That's it i i no i did okay no no you would not do that and the reason is the reason i bring the example and i make it large is it makes you feel the risk that you apparently didn't feel when you were borrowing on your student loan debt in order to invest in mutual funds or index funds. I like index funds. I like mutual funds.

But there's risk inherent in those. And when we studied 10,000 millionaires, we talked to zero of the 10,000 that said, you know, I refuse to pay off my debt. Instead, I used all the money while I stayed deeply in debt to invest, and that's what made me wealthy. None of them said that. Zero out of 10,000. All of them had a very similar story to I became wealthy because I got out of debt and i steadily invested not because i borrowed money to invest it just wasn't there we didn't find anybody that did this and so it's uh it's a set of math that assumes no risk is why you don't think that you're not perceiving that there's actual risk between a student loan debt being there,

which adds risk to your portfolio, and then you've got your money invested in the stock market, which is volatile, and you're going to ride that wave. There's risk there. It's not usually back-breaking risk, but it doesn't lead you to wealth. We have no data points of people doing that on a large scale that causes it. And so we're always going to lead you your shortest path to wealth and is, because the debt-free place gives you not only a place of high cash flow so you can invest, but also gives you a place that is solid.

You're on solid ground that doesn't move. And when things go up and down and sideways and up and down and sideways, everybody takes one step forward and three steps back, four steps forward and seven steps back. And there's all this gyration and rhythm in these people's lives that take risk all the time and so now i'm gonna tell you to pay off the student loan debt um and i'm really sorry that you went that far in debt for that degree this is the dave ramsey show open phones at 888-825-5225 if you want to hear what has really gone on with this epic student loan crisis we have an eight episode podcast uh number seven will drop on monday

of the eight episodes called borrowed future it's a new endeavor for the ramsey network crew george camel is our host. It's a little different format. Usually our podcasts are one of us yakking, one of the personalities yakking, and we are definitely in the mix, but George is leading us through this process and does a masterful job of interviewing experts, whistleblowers, people who are deeply in student loan debt, people who went through school without student loan debt, people who overpaid for their education, people who didn't overpay for their education, and all the Ramsey personalities mix in, and certainly Anthony O'Neill with his stance on the book Debt-Free Degree. It's called Borrowed Future.

Hundreds and hundreds and hundreds of thousands of people have already downloaded and listened to the first several episodes. And again, number seven will drop on Monday. If you want to know what's really going on in this crazy land of student loans, well, check out Borrowed Future wherever you listen to podcasts, Apple, Google Play, or whatever. our scripture of the day proverbs 4 23 all else, guard your heart for everything you do flows from it. Euripides said, ten soldiers wisely led will beat a hundred without a head. Love it. Sherry is with us in Missouri. Hi, Sherry.

Welcome to the Dave Ramsey Show. Hi, Dave. Thank you so much for taking my call. My honor. What's up? My 16-year-old son just started a part-time job this past summer. And while he, of course, thinks he needs to save money for a car, we've also talked to him about the importance of investing. The sooner, the better.

But because my husband and I did not know that when we were his age, we're a little sort of confused, I guess, at this point, about where we should have him invest at such a young age. He's thinking maybe $50 a month, so it's not a lot of money. So we just weren't sure what to do. The only reason I would have him actually open a mutual fund account at $50 a month at his age is for the lesson that he learns, how the mutual fund works, and to get the rhythm of steadily saving and steadily investing build that muscle in his character that's the only reason to do it otherwise i'm okay if he doesn't do it at all

because right now he has two primary things he needs to be concerned about and that's a car and college and long-term investing he doesn't need to do for either one of those when he's 16. So just even if he put $50 a month in a savings account that didn't earn a lot of interest, it would accomplish almost the same thing. But if he just wants to learn the lesson, then holler at one of the SmartVestor pros. They can. There's a few mutual funds that will allow an automatic draft from a checking account to happen and to get you going on that, you know, to make that happen for you.

And if he opens up a checking account or you use your checking account or whatever and it's automatically drafted and then he gets a statement by email and that kind of stuff it's just the lessons that are learned are all that's valuable our kids did not begin investing in that manner at that age what we did do were two things obviously we taught them how to handle and run a checkbook, and obviously, well, not obviously, but we did. And they were saving for their car first, and we were taking care of college. And we had an agreement that we would match them for whatever they saved. We had 401 Dave, and so if they saved $1,000, then I'd put $1,000 with it, and they'd get a $2,000 car.

I do recommend you put a limit on that, parents, if you've got young children out there and you're thinking you're going to teach them that. Because by the time the third one comes along, they catch on, and they can have $10,000 or $15,000, and all of a sudden you've got a $30,000 car for a 16-year-old which isn't bright. So you don't want to do that. But anyway, we want to match up to a point of common sense and teach them that you know to save we did do that the second thing we did was we were of course at baby step seven by the time our kids were teens and uh out of debt and had

fully funded all possible retirement accounts and so so anytime they worked, we filed a tax return on all of their earnings, babysitting, dog walking, working here at the office, anything they did to earn money. We filed a tax return on every dollar of it so that they had the earned income, and then I would pay what little amount of tax that generated for them and i would put the exact amount into a roth ira in their name and so if they had an earned income of 1342 dollars that year and file a tax return on it 13 years old not i put 1342 dollars in a roth ira for them and then they can watch that mutual fund grow now that will turn into some serious dollars they're in their 30s now and they look at those accounts and grin um and so because we got that

started early but again we were at baby step seven at that stage so those are two things we did do um and they watched their college funds that we were funding grow as well. They got to see the statements. So they had the interaction with mutual funds, and they had the interaction with saving to hit a goal, but we didn't actually start a $50 a month plan where their $50 was going into it and all that kind of stuff. That wasn't the plan that we used.

So hope that helps you. Something to think about. But get with a smart investor pro if you want to do it, and they'll walk you through how to do it. Tina is in Florida. Hi, Tina. How are you? Hi, Dave.

Thanks for taking my call. How are you, sir? Better than I deserve. What's up? So my husband and I have some disagreement on how much our mortgage should be. So I would like to know what your thoughts on this. So our current rent is $1,400 a month. My husband's gross is about $65K minus $80K.

And we want to put 20% down. I want to buy next year because I don't want to pay any more rent. And I feel more comfortable if our mortgage and housing expense is about 1,000 to 1,200 months. So in case our income drops, in my case, my income is more variable. My husband can still easily pay without stress. And this would mean a small condo around 18, I mean, 180K. And then we can try to pay it off within like three to four years and then move out. My husband has not liked any house or condo in this price range.

It's either because of the location is bad or the condition of the house. He likes things to be updated. So what he likes are usually in the 300 K. And because of that, he suggests you a stay in our apartment longer to save up for more down payment until our mortgage is a quarter of our tick home, just like you suggested, or stay even longer until our mortgage is at my comfort level or do a 30 year six, but make payment as if it's like a 15-year six and then decrease our monthly payment if we need to. But I just feel like it's a waste of money to rent after we are debt-free and have $36,000 as down payment and $20,000 as an emergency fund.

What do you want from me? What do you think would be the best for us or what would you we teach people to buy no more than a fourth of their take-home pay on their household income which sounds to me like you have 140 000 gross revenue gross income and um whatever your take-home pay is on that a fourth of that on a 15-year fixed is the maximum that I would tell someone to take out. Of course, anything less than that that both of you can agree to would be okay with me. But that's more than you're talking about, considerably more than you're talking about,

because you're not even counting your income. And you make $80,000. I feel sort of insecure about my income because it may go down. Why? What do you do? I'm a pharmacist. Why do pharmacists suddenly make less money? When I look around, so recently Walmart fired, you know, the pharmacists who make, like, more money and then hire a lot of new grads. Yeah, but they're not paying them. You're making $80,000 as a pharmacist, right?

Right. There are a lot of pharmacists making 120. Right. And there's hardly any making 60. Yeah, right. I think it just scares me how, you know, things have changed. What is your upbringing? Where were you raised?

I was born in Vietnam. Okay. So some of this is just your situation you grew up in in your household growing up, and for that reason you don't sense the stability of your – a pharmacy degree leaves you sitting at $100,000 average over the next 10 years, 99 times out of 100, as long as you don't screw up professionally or something. So I think you're just scared, and I'm not scared for you at all. So I don't know if that helps you or not. I don't blame you.

I understand. But, hey, that puts us out of the Dave Ramsey Show and the books. We'll be back with you before you know it. In the meantime, remember, there's ultimately only one way to financial peace, and that's to walk daily with the Prince of Peace, Christ Jesus. Hey, it's Blake Thompson, Senior Executive Producer for the show. You know, you can listen or watch anywhere with the Dave Ramsey Show app on your smartphone. Catch the full show or watch the highlights

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