Kids and Finances (Wall Street Journal)

July 2, 2008


Hello Muddah, Hello Fadduh,
My Portfolio Is in the Gutter
At Finance Camp, Kids Learn
About Stocks, Bonds and Risk;
Paying Bills With Cow Moola
By MARY PILON
July 2, 2008; Page D1

This summer, droves of school-age children will attend summer camp, where they will paddle canoes, play tennis and make crafts from paste and yarn. Others, will go to finance camp, where they will take excursions to a local bank or delve into budgeting and investing simulations. Rather than singing around the campfire, they will chant personal-finance mantras like these sung at Camp Millionaire in Santa Barbara, Calif.: "Financial freedom is your choice" and "Assets feed you, liabilities eat you."


Ed Koren
In the past, business and finance camps attracted high-achieving high-school students. Now, with the country's uncertain economy, financial education is expanding to an unlikely audience -- younger kids, even grade-school students. They are also reaching out to those from diverse economic backgrounds. And the lessons are surprisingly sophisticated, teaching campers how to rebalance portfolios, invest in real estate and use credit cards without getting dinged on fees.

At Camp Millionaire, campers in five days create a minieconomy based around "moola" -- mock currency that features a cow's portrait -- which kids use to spend, invest in stocks and compete with each other. They also use the fake currency to pay their "bills," running around and depositing moola in large envelopes with labels like "phone bill" and "credit card bill." Parents spend the real moola to send their kids to the weeklong session, which ranges from $279 to $300. Scholarships are available, based on financial need.

"Adults underestimate kids' abilities. Investing -- they'll get it and be interested in it," says counselor Pamela Capalad.


Andrew Adams, of Santa Barbara, attended the camp twice, once when he was 10 years old and again two years later. "He was coming home with words like 'adversely affect your credit score,' " says his mother, Denice Adams.

Andrew pointed out to his mother that her credit-card billing cycle had changed, and that she wasn't keeping up with payments. Her delays were racking up late fees, jacking up her interest rate and hurting her credit score. After considering her non-discretionary household expenses (his words), Andrew also pronounced that the mortgage on their Santa Barbara home was too high for her income. Now 15 years old, Andrew has launched his own small travel business and is a financial-news junkie.

Gauging Risk

At YoungBiz's Smart Start to Money Camp in Sarasota, Fla., campers ages 13 to 18 are asked to toss a ball into a bucket, earning more points the farther away they stand. It aims to teach kids about risk tolerance and lead them into a discussion about stocks and asset allocation. How far away from the bucket they're willing to stand might tell them something about their investing style.

BONDING OVER BANKING


1
Read about girls-only finance camps2 and join a discussion on WSJ.com's Front Lines3.Campers pay $100 to $300 for the three-day session, in which they form teams and compete to create the best portfolio. In 2001, during one of the first camps, one camper pleaded with his teammates to buy stock in a then-risky company, eBay. His peers lobbied for safer bets, like utility companies. After a fiery debate, the team passed on eBay but agreed on an alternative stock allocation. They won the competition because counselors were so impressed with their cooperation.

Camp Challenge, a joint effort between the North Carolina Bankers Association and 4-H, mixes financial education in the morning with traditional activities, such as horseback riding or swimming, in the afternoon. For $350, kids 10 to 14 years old learn the basics of everyday finance using the FDIC's Money Smart curriculum.


Robin Diamond
Federal Reserve Chairman Ben Bernanke with campers from Camp Challenge.
Camp Challenge is also part of the America's Promise Alliance, a business and nonprofit cooperative that works to reach students at risk of drug abuse or dropping out, for example. The weeklong overnight camp in Westfield, N.C., has drawn the attention of Federal Reserve Chairman Ben Bernanke and former Secretary of State Colin Powell, who have been known to mingle with campers when they're in the area.

In Denver, the Young Americans Center for Financial Education takes a macroeconomic approach to financial education.

Creating a Ghost Town

In weeklong sessions that cost $185, fourth- and fifth-graders take part in large-scale simulations of the economy of a small town. Campers apply for jobs. They create business plans for 17 different businesses, patronize others along Main Street and even buy health insurance. (It costs two AmeriDollars.) One year, the counselors had a camp of savers, and AmeriTowne turned into a ghost town when the kids refused to spend any money. The incident sparked a fruitful discussion about free enterprise. Counselors asked campers to imagine what would happen to AmeriTowne's Main Street if no one spent any money in the long term. The grim consequences of an inactive economy soon became apparent, especially when they realized that they, too, were business owners.

Global Economics

The fifth- and sixth-graders take the minitown approach and bump it up a notch to the International Towne. It is like a model United Nations with a robust focus on trade, currencies and deficits. They're thrown questions about environmental protection and sustainability. When counselors asked campers to write down how they would cope with limited water resources on the planet, they ran out of paper.

"They really run the world at the end of the week," former banker C.J. Juleff, vice president of programming for the camp, said.

Write to Mary Pilon at mary.pilon@wsj.com4

URL for this article:
http://online.wsj.com/article/SB121495019809220955.html


Hyperlinks in this Article:
(1) http://blogs.wsj.com/frontlines/2008/07/02/girls-bond-over-banking/
(2) http://blogs.wsj.com/frontlines/2008/07/02/girls-bond-over-banking/
(3) http://blogs.wsj.com/frontlines/2008/07/02/girls-bond-over-banking/
(4) mailto:mary.pilon@wsj.com




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Estate Tax Outlook (Wall Street Journal) - Stayin Alive

TAX REPORT
By TOM HERMAN






Stayin' Alive:
How to Cheat
The Estate Tax
July 2, 2008; Page D1
You still can't take it with you. But by timing your death, you can leave more of it to your heirs.

As ghoulish as it sounds, thousands of high-net-worth Americans who care about the financial well-being of their heirs have a powerful tax incentive to survive until at least Jan. 1, 2009. On that day, the federal estate-tax exclusion is scheduled to jump to $3.5 million from $2 million this year.

"No respirator plugs will be pulled in December," predicts Michael Graetz, a Yale Law School professor and co-author of a 2005 book on the estate tax, "Death by a Thousand Cuts."

The top estate-tax rate, now 45%, won't change. But raising the exclusion by $1.5 million could translate into tax savings of hundreds of thousands of dollars for heirs fortunate enough to have a wealthy benefactor who continues breathing until New Year's Day.

Some affluent Americans already are keenly aware of the increased importance of staying healthy. "It's less important to have a lawyer for sophisticated estate planning than to have a good cardiologist," says Douglas E. Schoen, a New York political consultant and author who expects to leave a large estate.

The imperative to stay alive is likely to take on growing importance in the final weeks of 2008, especially for wealthy people in poor health. But based on current law, there's an even bigger incentive to survive until 2010. In that year, the federal estate tax is scheduled to disappear entirely, only to reappear again in 2011 with a $1 million exclusion for 2011.

Don't bet on total repeal of the estate tax, though, even for one year. Financial planners, accountants and lawyers expect Congress and the next president -- whether it be Sen. Barack Obama (D., Ill.) or Sen. John McCain (R., Ariz.) -- to reach a compromise that will retain the estate tax in some form.

"The one thing we all know cannot happen is what current law says will happen," says Mr. Graetz, referring to the current law killing the estate tax in 2010 and reviving it in 2011 with only a $1 million exclusion. "That means Congress must act next year, no matter who's president."

So what will Congress do? Although nobody knows, it's significant that, under both candidates' plans, only a tiny fraction of all estates would get hit by the federal estate tax. "Our calculations from IRS and other data sources indicate that Obama would tax less than one-half of one percent of all estates of people dying in the U.S. -- and McCain would tax less than one-quarter" of one percent, says Clint Stretch, managing principal of tax policy at Deloitte Tax LLP in Washington.

So what should well-to-do families do until the dust settles? For a look at what could lie ahead, we've provided, below, the proposals of Sens. Obama and McCain, based on interviews with their advisers, and calculations done by Deloitte for The Wall Street Journal on how families would be affected by them -- as well as advice from tax planners.

The Obama Plan. Sen. Obama proposes a $3.5 million exclusion in 2009 and thereafter, with a top rate at 45%. His plan will "fully repeal the estate tax for 99.7% of households," says Jason Furman, Sen. Obama's economic policy director.

"He would add certainty and stability to the tax code by making the 2009 estate tax parameters permanent, exempting estates of up to $7 million for a married couple," Mr. Furman says. The Obama plan "retains the estate tax for the top 0.3% of estates in order to restore fairness to the tax system, helping to pay for a tax cut for 95% of workers and their families."

The McCain Plan. Sen. McCain proposes raising the exclusion to $5 million per person and cutting the top federal estate-tax rate to 15%, says Douglas Holtz-Eakin, the senator's senior policy adviser and a former director of the Congressional Budget Office. This plan "should go into place ASAP after he is elected," Mr. Holtz-Eakin says.

"If the political climate makes it next to impossible to achieve full repeal, then Congress should look towards a compromise," says Mr. Holtz-Eakin, referring to President Bush's unsuccessful efforts to kill the estate tax permanently. He calls Sen. McCain's plan "a compromise that holds the potential for breaking the logjam and providing some much-needed certainty."

Cutting the tax rate to 15% "would link the death tax with the current capital-gains tax rate," Mr. Holtz-Eakin says. "By doing so, Americans will not be forced to pay more in death than they would if they had sold property prior to their death." He also says that a $5 million exclusion "is generally thought by many to be the appropriate size to help small-business owners avoid cash-flow difficulties" upon the death of a family member.

Stepping Up. Despite their differences, both senators support retaining the current system for valuing stocks, mutual-fund shares and other inherited property whose value has increased over the years. This is important to many heirs because it can affect how much they eventually owe in capital-gains tax, if anything at all, when they sell inherited property.

Suppose your aunt dies and leaves you an assortment of stocks and fund shares that have risen sharply in value over the years. Under the current system, your cost "basis" for purposes of calculating future taxes would typically be their value on the date of her death (or, in certain circumstances, six months later). This system often is referred to as "stepped-up basis" or "step-up in basis," since the value of the appreciated asset typically gets stepped up to fair market value. The current step-up system is scheduled to continue through 2009, and then undergo major changes in 2010.

What You Could Pay. Under both candidates' plans, very few estates would have to pay federal estate tax. How much heirs ultimately pay could vary widely depending on such factors as state tax laws. But the McCain plan, if enacted, generally would mean much-larger savings for heirs of substantial estates than the Obama plan.

Heirs to the biggest fortunes should care far more about what happens to the tax rate than the exclusion amount. "The wealthiest Americans would benefit more from McCain's tax-rate decrease than from his exemption increase," says John Olivieri, a partner at the law firm White & Case in New York.

Analysts at Deloitte Tax estimate the federal estate tax for a hypothetical $5 million estate under the McCain plan would be $675,000 less for 2009 than under the Obama plan. For a $10 million estate, the savings under the McCain plan would be nearly $2.2 million. For a $50 million estate, the difference would be more than $14 million. For a $100 million estate, the difference would be more than $29 million. (These numbers reflect federal tax only; many states levy their own taxes.)

Getting Ready. Besides staying in good health, consider a few other ideas. For starters, make sure you have all your key documents in place and up to date, such as your will, durable power of attorney, health-care proxy and living will, says Mr. Olivieri. "An up-to-date will should contain a plan flexible enough to deal with the changing tax landscape," he says. Also make sure those you trust know where all these documents are located.

One of the easiest techniques is to take advantage of the annual gift-tax exclusion. That allows you to give away as much as $12,000 a year to anyone you wish -- and to as many people as you want -- without having to worry about taxes or even file a return. In addition, you can pay someone else's tuition or medical expenses without having those payments count toward the annual limit -- as long as you make your payments directly to the educational or medical institutions. Many wealthy people use the gift-tax exclusion to reduce the size of their taxable estates.

There are many other techniques worth considering, including setting up various types of trusts, such as a "grantor-retained annuity trust," or GRAT, says Don Weigandt, a managing director of J.P. Morgan Private Bank in Los Angeles. This type of trust is popular among those with assets expected to increase in value. Another idea: Consider moving from a high-tax state, such as New York or New Jersey, to one such as Florida or Nevada.