Lazy Man and Money

McEconomics!

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This article is from occasional contributor, Kosmo. At the end, I’ll tack on some of my own McDonalds economics thoughts.

McDonalds Economics

Several weeks ago, I was at McDonalds with my 9 year old.  It blew his mind that I was able to put together a package that included more food at a lower price than the standard option.  I’ve turned this into a personal finance lesson for him and his 11 year old sister.

They like McNuggets.  A lot.  Typically, they’ve had the six piece Happy Meal, but they’ve reached the point where they (usually) don’t care about the toy anymore, and they want more food.

What do they want?  Between the two of them, they want 18-20 nuggets, some fries, and two bottles of chocolate milk.

The standard six piece happy meal contains:

  • 6 nuggets
  • Small fries
  • Apple slices or Go-gurt
  • Drink (chocolate milk)

The cost is $4.18 each, for a total cost of $8.36 for two.  They end up with fewer nuggets than they want, but two Go-gurts (which they’re somewhat ambivalent about).  Realistically, they’d need three Happy Meals to get the right number of nuggets.

So I went comparison shopping to see how else I might accomplish the goal.

A ten piece nugget value meal is $7.49.  To get twenty nuggets, I’d have to spend $14.98!  I’d end up with

  • Twenty nuggets
  • Two medium fries
  • Two medium fountain drinks

I’d have to swap out the fountain drinks for the chocolate milk.  I’m not sure if there’s an upcharge for that, because this option was immediately discarded – because I found a better deal.

I went the a la carte option and took advantage of some special deals and coupons.

  • The ten piece nugget is part of a 2 for $5 deal.
  • I have a coupon for a large order of fries for $1.  This is a coupon I can use once per week via the McDonalds app.

Here’s what I ended up ordering:

  • Two ten piece nuggets @ 2/$5 = $5
  • One large order of of fries = $1
  • Two chocolate milk @ $1 = $2

Total cost: $8.  This is 8 more nuggets than the two Happy Meals, and more fries, since a large is more than twice as big as the small.  The cost is 36 cents less than the two Happy Meals!  You may have noticed the missing Go-gurt.  The good news is that you can buy a Go-Gurt or apple slices for 50 cents.  For the sake of argument, let’s say that I get two Go-Gurts.  That brings the total to $9.  I’ve gotten all the food the Happy Meals would have, plus eight extra nuggets, for 64 cents more than the cost of the Happy Meals.

For myself, I got two bacon, egg, and cheese biscuits.  Sticker price $3.39 or 2 for $4.  I would have slightly preferred one bacon, egg, and cheese biscuit and one egg McMuffin, but I’m not going to pass up the 2 for $4 deal.

Later, I pulled out a piece of paper and walked them through the options and prices.  They were impressed at the price differences.

Is this post simply a way for me to brag about my ability to save money at McDonalds.  Well, sort of.  But mostly it’s to illustrate how simple it is to teach some basic personal finance lessons.

Unit pricing is another area where I try to teach the kids an occasional lesson.  Toilet paper is a good place to start, because there are so many options within a brand and style.  Which Charmin Ultra Soft Mega Roll is the best option – the 4 pack, the 8 pack, the 12 pack, or the 18 pack?  You’d expect the per unit price to drop as the quantity increases, but that’s not always the case in the real world.

My nine year old is starting to grasp the concept.  He can already determine which box of garbage bags we should buy.

I’m not necessarily a tightwad.  There are things I’ll spend money one (MLB.TV, for example).  But if I need 36 rolls of toilet paper, I don’t want to pay more per roll simply because I chose the wrong size package.  36 rolls is 36 rolls, regardless of how they are packaged.

I’ve also given the kids a thirty thousand foot exposure to concepts like bank accounts, credit accounts, pensions (and the difference between defined contribution and defined benefit), 401(k)s, 529s, and income taxes.  As they get older, I’ll go deeper into these topics, so that by the time the graduate from high school, they’ll have a solid understanding of personal finances.

Editor’s McDonalds Economics Thoughts

For a long time, we were able to escape the McDonalds Happy Meal trap. Our kids simply didn’t know they existed until Grandma spoiled the plan. They would have figured it out eventually, but I can still fondly look back on those days.

With my kids at age 5 and 6, the Happy Meal is still important to them. However, we use it a treat. Typically, we’d take advantage of the five dollar 20-piece nuggets in our area. That’s the equivalent deal as Kosmo’s (except for the bulk requirement). Since my kids are smaller, we don’t need too much more to feed 3 or 4 of us. A $1 Value Menu sandwich will usually do it.

Recently, we’ve revisited the value of the Big Breakfast with Hot Cakes which is an economical ~1350 calories. Everyone has their favorites and it just seems to work out for us. Once again, an extra $1 value menu sandwich or two can round out a hearty breakfast for the family. It’s been particularly handy at the Orlando airport terminal that we seem to visit a few times a year.

As for teaching unit pricing, my kids are a little young for that. I’m very good with unit pricing, but toilet paper is very, very difficult. The best I can do is look at square footage to avoid the differences in mega-rolls and regular rolls. Doing a dollar per square foot isn’t always easy though.

Instead, I’m going to turn to teaching unit pricing through something that I know my kids will pay attention to: Pokemon. Specifically Pokemon Go has items for sale at the shop. A single super egg incubator will run 200 PokeCoins. However, you can get 10 super egg incubators and a bunch of other useful stuff (lucky eggs, and star pieces) for 1480 PokeCoins in an Ultra Box.

We’ll go down this road in more detail over the next year or so. For now, I explain that I can get a lot more things if I save my PokeCoins and take advantage of the package deal. I have a suspicion that unit pricing will come up in more video games in the future.

Starting Your Kids on a Financial Independence Path

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Everyone is a product of where they focus their time and energy, right? As you can tell from this blog, much of my focus is on personal finance, especially financial independence. In my personal life, much of my focus is parenting two boys, ages 5 and 6.

Kids-Financial-Independence

Getting them started on a path of financial independence is inevitable. Given their age, we are working with simple things like chore charts and saving money for special toys.

One of my biggest concerns is the changes in the world. When I growing up in the 80s, I knew programing a computer was the future. Nowadays, retail stores and newspapers are closing. The automotive industry may nearly disappear as robot, on-demand cars may mean car ownership and driver jobs are a thing of the past. Artificial intelligence promises to disrupt more markets.

I know that most people think new jobs will be created. That’s probably true, but who knows if enough good jobs will be created. It seems that the current trend is replacing journalist jobs with influencer jobs. That should concern us all.

We can’t change where the world is going, but we can help prepare my kids. Here are a few things that we’re doing:

Teach Core Life Skills

This is a no-brainer. Some skills never grow old and can directly influence your bottom line. Here are the first two skills that came to mind. If you can think of more, I’d appreciate it if you could please drop me a line in the comments.

1. Cooking

Food is often one of people’s largest expenses. It doesn’t have to be. Eating out at restaurants is expensive. If you know the basics of cooking, going out to eat is less appealing.

We’ve got the kids enrolled in an after-school cooking class. They might not be learning much. (I’m still waiting to be served breakfast in bed.) However, they are learning and enjoying it. Those are the important things at this age.

In conjunction with learning cooking, I hope to teach the boys how to shop to save money. This will include updated versions of the following articles:

Being able to manage and limit one of their largest expenses can only help their financial bottom line in the future.

2. Handyman

I’m not handy at all. I can’t fix anything. I can barely work a screwdriver. If something breaks, I have to write a check.

That’s not good, especially for landlords like us. If you are good at fixing things and home improvement in general, you can create a lot of real estate opportunities with just sweat equity. You can fix up the house and move repeating the process over and over. You may even be able to keep the money tax-free when you sell. It may be a long time before artificial intelligence replaces carpenters and plumbers.

Perhaps someday, one of their jobs could be a managing our real estate “empire” and we could pass money and equity to them over time. I haven’t figured out exactly how this arrangement would work, but in theory there’s an opportunity there.

For now, I just want my kids to be better than I am with any handyman stuff. Home Depot has “kid workshops” once a month, but we haven’t had a chance to get to one yet. They also have workshops for adults, so maybe it’s not too late for me to learn a thing or two to pass on.

Personal Finance

I don’t think I’ll have to focus on teaching them too much about personal finance. I half suspect that they’ll learn it from osmosis perhaps like I did from my mother. However, I can give them a couple of boosts.

If they don’t master personal finance from osmosis, they can fill in the gaps with my Ultimate Guide to Financial Freedom. I’m hopeful that when they are older they’ll give their old man 10-15 minutes to read the Cliff’s Notes to financial success.

As a practical matter, I recently wrote about their kid Roth IRAs which will give them a head start in saving for retirement.

Education

Education is one of the foundations for a high-earning career. We’re investing a lot in private school now in hopes that it will set them on a great path for the future.

I’m still not sure that’s an optimal investment. For example, an episode of Teen Titans Go! (one of my favorite kid shows) brings up the idea that investing in a rental property is better than college. I don’t agree, but it’s an interesting topic. Of course, the Teen Titans teach a lot of personal finance.

Finally, it’s helpful that the the best financial independence book is actually a kids book.

Final Thoughts

One of things that I’m hoping to balance is giving an opportunity versus handing them too much. That’s why they are earning their kid Roth IRAs by picking up dog poop. That’s also why I think they would have to be property managers before they reap the benefits of the rental properties.

Keeping the Opportunity Wedge Wide Open

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Note: The month of March might be slow around here. I hoped to get ahead of some planned travel, but with four of the last six days derailed by kids’ snow days and their flu, it hasn’t happened. The good news is that I have plans and outlines for at least a dozen articles.

It’s not often, but sometimes an article just sticks with me long after I’ve finished reading it. In extremely rare circumstances I’ll come back across it months later and think, “Wow, I’m glad I read that.”

Today, I want to share one such article with you.

It’s called The Opportunity Wedge and it’s on the website Live Your Wage.

I’m going to describe it, but feel free to click the link above (it will open the article in another tab), because you’ll probably want to read his take on it too.

Essentially the concept is that you are born with a huge number of possibilities (or opportunities) in life. As time goes on, the possibilities disappear until you get to a single point at the end of your life. Yes, it’s kind of morbid.

Think about it. I don’t remember what I wanted to be when I was 5, but I’m fairly sure astronaut, basketball star, doctor, and firefighter were all in there. At age 42, firefighter is about the only one I’d have a chance at… and I’m not sure I’d make the cut there either. Some of the possibilities were actually eliminated by my DNA… the basketball star is one example.

The opportunities can go away for any number of reasons. Personally, I became very interested in programming computers. I liked breaking big problems into smaller ones and solving them. When I learned more of what doctors’ jobs entailed, I found that I wasn’t interested in that. When you choose to spend your time in one way, you are also choosing not to spend your time in another way.

I keep coming back to the opportunity wedge because I’m now a father of 5 and 6 year old boys. The oldest wants to make Pokemon real, so maybe he’ll spend a lot of time learning about DNA, RNA, and CRISPR. Maybe he’ll be interested in something else later in life. Whatever it is, I see my job as trying to keep their opportunity wedges as wide open as possible.

Or as a gazelle would put it, try everything (even if we fail):

This philosophy has some financial ramifications. Swim lessons, piano lessons, karate all cost money after school. There are some more frugal options, but keeping the opportunity wedge open means not just choosing something because it is the cheapest option.

It also means that I will spend money almost anything that seems like a reasonable educational expense. This unfortunately doesn’t always work out well:

And sometimes it works out wonderfully, like the awesome Osmo Genius Kit.

Keeping the opportunity wedge as open as possible also means spending a lot of money on private school. That’s been a very paralyzing decision, as I don’t see ANY other personal finance bloggers doing the same. (I may have missed some.) There’s not a day that doesn’t go by where I think, “The compound interest on this money would be tremendous down the line.” I have to remind myself that we can’t predict the future. Investing the money on education or investing it in the stock market are just different ways to keep that opportunity wedge wide.

It’s easier to focus on their opportunity wedge than my own. I’m still not sure what I want to be when I grow up. However, recently I got excited about the idea of writing a book. It has been something that I’ve been toying with for years. Just the other day I had a completely new idea that has renewed my interest in that tremendously.

But that’s a story for another day.

Ask The Readers: Investing for Kids?

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A little more than a year ago, I wrote an article about whether or not to invest our babies’ money. The advice was overwhelming. Since they aren’t going to use this money (mostly birthday cash from relatives/friends) for quite some time, it should be invested on their behalf.

invest baby money
Look at all this money!

Unfortunately, I lived down to my Lazy name. I didn’t invest the money. On the bright side, they probably haven’t lost any money as I would have split it between domestic and foreign stocks. The domestic portion would have done well and the foreign, not so well.

It’s time to fix that. I’d like to set-up a brokerage account for them. Even a year later, at ages 1 and 2 they won’t be needing the money for years. I called up USAA with a very simple plan: open up a brokerage account in each of their names, transfer their money into, buy an ETF, and watch it grow over the years.

Bad plan.

Since they are under the age of 18, I can’t open an account in their name. That makes legal sense, but I didn’t anticipate it. It appears that there are two options:

  1. Open two brokerage accounts in my name. In this case I’d manage them as if they were my own.
  2. Open a UGMA/UTMA account for each of them. In this case, there’s some special tax treatment that I’d have to understand.

So let’s look at the two:

Brokerage Accounts in my Name

It doesn’t feel right to have the money in my name. It’s their money.

From a financial perspective, this money should be taxed at their income levels… which would be significantly less than mine even in the future.

Pros and Cons of the UGMA/UTMA

Evan from My Journey to Millions highlights some of the problems with UGMA/UTMA accounts:

1. When it comes time to calculate financial aid, it’s going to show up as their money.
2. The children receive the money at age 18 or 21 (depending on the state).

I don’t have a problem with either of these. The money should show up as theirs when it comes to financial aid. I don’t care if they spend it before the age of 18 or 21. In fact, I’m hopeful it will grow to be enough to buy a car at age 16. Then they can say, “Hey, good job investing my money when I was 2, Dad!” (I won’t hold my breath on that one.)

What I have a problem with is that a significant portion could be taxed at the parents’ marginal tax rate. Reading this this tax codes makes my head explode. As I understand it, this was prevent a loophole where parents were using this to shelter their money.

I don’t think money that was gifted to them by friends and relatives should be subject to our tax rate, but it seems like it is.

So What Should I do?

I don’t know if this is an answer to my own question, but I’m thinking that this whole issue may be a moot point. I intend to buy an ETF in the brokerage and hold it for a long, long time. I think that would qualify it as a long-term capital gain and not subject to marginal tax rates.

It makes me think that I should just open the brokerage account in my name and manage it myself. Just to be sure a call to my tax advisor may be of help.

In case you were wondering, I’m thinking of buying Vanguard Total World (VT) as my one stock for them. The reason is that this provides great growth potential and diversity (in a domestic and foreign sense) with minimal risk (due to the long-term outlook). Also, since they don’t have a lot of money to invest, I want to keep the brokerage commissions at a minimum (a $10 commission is 1% of a $1000 balance). That rules out buying a portfolio of stocks.

So what do you think? Let me know in the comments below.

Ask the Readers: Best Place to Invest Around $1000?

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A few weeks ago, I wrote an article about whether I should invest my babies’ money. I think the general consensus was that I should, especially because I’ll personally make up for any losses. (Don’t you wish all investing companies were as cool as me?)

So the question then becomes, where do I invest the $1000? Ideally, I’d keep the expense ratio as low as possible and still have a diversified fund. If it were more money, I’d open up a brokerage account and buy Vanguard’s Total Market Index. However, for less than $1000, the commission to buy would be around 1%. I suppose that isn’t the worst thing in the world. At least it would be a one-time fee. After that, it would be Vanguard’s typical low commissions.

Alternatively, it appears as if I could open up an account at Vanguard itself and buy a mutual fund perhaps avoiding the commissions.

I’m probably over-thinking the commission. While 1% seems like a lot, in reality it is $10, which is pretty tiny, right? Perhaps not. He may get $100 to $200 on a birthday or something, which means that money would have to go to a savings account unless I want to pay a 5-10% fee via commission to buy more shares. That mutual fund is looking better and better.

Mutual funds just seem weird to me as I haven’t invested in them in probably more than 15 years (outside of a 401K).

Another idea is to go with Lending Club. As I was writing about yesterday, it occurred that me that it could be a good fit. The only problem is that I’m not sure my wife would be on-board with such an unusual idea. Maybe I can convince her with the humorous concept that a two year old would be lending money to a bunch of adults with financial problems.

Even if I could convince here, I’m not sure that Lending Club will let a two year old open an account. It does look like there’s a custodial account. I’ll be the first to admit that I don’t know much about Uniform Transfers to Minors Act (UTMA) and Uniform Gifts to Minors Act (UGMA) types of accounts. However, these don’t seem to be a fit, since the money is owned by the children, it isn’t a gift from me to them.

I know I’m all over the map with this topic. That’s why it is perfect for an “Ask the Readers” article. Got any advice to point me in the right direction?

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