Give Children Investment Books Only in Rare Cases--When They Want Them
Q. You recently told an aunt who wanted to give a financial book to her niece that you didn’t think investment books were an appropriate gift for an 11-year-old. We bought our son books on money and investing when he was that age because he showed quite an interest in the subject. Today he is a stock broker and well off, so we think you should reconsider your advice.
A. If your son had been interested in a career as an entomologist, you probably could have given him a jar of bugs for Christmas without repercussion. That doesn’t mean any other 11-year-old would be delighted by the same gift.
Forgive me for straying into Miss Manners’ etiquette territory, but when it comes to gifts, intent is all. Your concern should be to delight the giver, not improve him or her. That’s why a cookbook can be a wonderful gift for a gourmand and an absolutely awful one for the daughter-in-law you suspect feeds her family solely take-out Chinese.
Parents, of course, are excused from this ban on character-building gifts to members of their own brood. But any aunt, uncle, cousin or grandparent who wants to retain their most-beloved status would be wise to heed the prohibition.
Now, a word to the authors of money books for children who’ve been raining free copies of their tomes on my desk for the last few weeks--yes, I have seen your book and no, it doesn’t change my mind.
Cash Reserve or Home Deposit?
Q. We met recently with a financial planner who made a suggestion I’d like your opinion on. I’ve always heard that it’s a good idea to keep several months’ salary readily available for unexpected emergencies. Up until now we’ve done so, keeping it in a money-market account. The financial planner suggested that another option would be to use the cash reserve to make a larger down payment when we buy a house--which we plan to do soon--and obtain a line of credit using the house equity for emergencies instead of keeping it on hand. Is this a good or not-so-good idea in your opinion?
A. The problem with taking out a home equity line of credit for emergencies is that you have to pay the money back, plus interest. In a real crisis--you lose your job, say--you might not be able to make the payments, and you’ll risk losing your house. How much better psychologically to have a pile of cash you can draw down, without having to deal with a bank’s loan department.
That said, it could make sense to use some of your cash to boost your down payment so it equals 20% of the home’s purchase price. That way, you avoid private mortgage insurance, which can add substantially to the cost of owning a home.
Help Wanted--but From Whom?
Q. My wife and I are seeking professional tax advice. We’ve always done our own taxes, but lately things have gotten complicated and we’re not sure if we are making the best use of our money. Between stock options, 401(k)s, Roth IRAs, various vehicles in taxable accounts, tax credits, a home business and a high income, tax planning has become a bit of an art that neither one of us feels comfortable with.
Our problem is trying to find the right professional and knowing what questions to ask. Should we seek a tax accountant or a financial planner? How do we know if we have a good one? My fear is that we’ll end up with a tax accountant whose main job has been to fill in 1040-EZ forms for their clients.
A. Bravo for recognizing that it’s time to get some help. Although most reasonably intelligent people can wade through simple tax returns on their own, any one of the situations you face--stock options, a home business, high incomes--would call for a professional consultation.
You can find lots of information about selecting a financial advisor at https://www.latimes.com/finplan. Because you may need both tax advice and financial planning, consider hiring a certified public accountant who has a financial planning credential, such as a CFP (certified financial planner) or PFS (personal financial specialist). You can find information about the CFP credential at https://www.cfp-board.org and about the PFS credential at https://www.cpapfs.org.
One of the keys to hiring financial help is making sure the advisor specializes in dealing with people like you. Get references from friends in similar situations, and ask about experience with options, home businesses and high-income planning before you hire anyone.
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Liz Pulliam Weston is a personal finance writer for The Times and a graduate of the personal financial planning certificate program at UC Irvine. Questions can be sent to her at liz.pulliam@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012. She regrets that she cannot respond personally to queries. For past Money Talk questions and answers, visit The Times’ Web site at https://www.latimes.com/moneytalk.
