QA: Should I Keep My Long-Term Care Insurance?

Understanding long-term care and why it is important

Ric Edelman is a co-founder of Edelman Financial Engines. The following is taken from his weekly radio call-in show.

Question: How much of one’s income should be spent on long-term care insurance? I’m single, 62 and have no dependents. My siblings and parents are deceased, and there’s a history of Alzheimer’s and colon cancer in my family. I earn $150,000 a year. I’ve had a “Cadillac” LTC policy for about 10 years, but it’s doubling in cost this year — to about $8,500 annually. It provides up to $10,000 a month for nursing-home care, an additional amount for home health care and many other benefits. It has a 5% inflation rider and an unlimited benefit period. I have about $400,000 in savings and investments and live in a rented house. I’m curious as to what, if anything, you think I should do about this policy, given the costly new premium.

Ric: Let’s simplify the question: If you were to need care, how would you pay for it?
You seem to have sufficient personal assets to pay for care for as long as you live. Thus, we could conclude that you can self-insure; you don’t need an LTC policy.

This means, however, that if you do need care, you will spend your money providing it. By the time you die, you might be broke. But so what? You have no spouse or children to worry about and no inheritance issues. But if you can’t afford the cost of care for your expected lifetime or aren’t sure, then you do need a good long-term care policy. Your family medical history also matters; Alzheimer’s patients live longer in nursing homes than do other patients, which could drive up your lifetime costs substantially. So do you really want to gamble that your assets will be sufficient for your care needs for your lifetime?

To learn what is advisable in your case, I suggest that you meet with a financial advisor who can review your financial situation comprehensively and help you decide what kind of LTC insurance you need and how much, what policy features you should have and how to make sure you can afford it.


Saving With Just a 401(k) May Not Be Enough

An IRA lets you contribute more and offers more flexibility in investment choices.

Do you contribute to an IRA? Only 28% of American workers do, according to a survey by LIMRA. The majority who don’t say they feel they can’t afford it. We would argue otherwise. Another 25% say they don’t contribute to an IRA because they participate in a retirement plan at work. That excuse doesn’t work either.

If you can afford to, you should contribute the maximum allowed to your workplace retirement plan. It’s convenient (contributions automatically come out of your paycheck), you pay less in taxes, you can contribute more than you can to an IRA and many employers match a portion (essentially, free money!). Add tax-deferred growth to the list and it’s clear why we give workplace retirement plans the gold star.

But that doesn’t mean you shouldn’t also be contributing to an IRA. For one thing, saving only in a workplace plan may not let you accumulate enough to meet your retirement income needs. You need to save still more — which an IRA lets you do. And IRAs offer you more flexibility in investment choices than your employer’s plan likely offers. You can contribute up to $6,000 this year in a traditional IRA — and $1,000 more if you’re age 50 or older. (Note: Tax deductibility depends on your household income. Talk to your tax advisor.)

To make your 401(k) and IRA work together, first contribute the maximum you’re permitted on a pre-tax basis to your 401(k). Then open an IRA and contribute the maximum there, too, on a pre-tax basis (i.e., until your income reaches the phaseout point where the IRA is no longer tax-deductible). Can you save even more after that? If you can, do so — in a taxable brokerage account that invests in a well-diversified portfolio.

Yes, that’s a lot of saving — and it requires discipline. But it’s worth it.

This material was prepared for informational and/or educational purposes only. Neither Financial Engines Advisors L.L.C (also referred to as Edelman Financial Engines) nor its affiliates offer tax or legal advice. Be sure to consult with a qualified tax or legal professional regarding the best options for your particular circumstances.


Q&A: 70% Increase in Long-Term Care Insurance Premium?

Are the high premiums worth it?

Ric Edelman is a co-founder of Edelman Financial Engines. The following is taken from his weekly radio call-in show.

Question: I’m 66 and my wife is 70. Twelve years ago, we purchased long-term care insurance for $765. It went up in 2009 to $902. I just got a letter saying that it’s going up almost 70%. My premium will jump to $1,083 and my wife’s to $1,836. I’ve complained to the company and to the state insurance commission to no avail. That commission is always going to approve these increases, right? The company says it couldn’t anticipate the costs, but I knew 50 years ago that people were living longer, so why can’t these insurance companies figure it out? I now have an appointment with a newspaper reporter to tell my story; I hope he prints it. Meanwhile, do you have any advice? We can’t afford this.

Ric: Well, newspapers are printing this story because it’s a widespread problem, but no, you can’t prevent the increase. Why didn’t the company anticipate the number and size of claims? Here’s why: Life insurance carriers have massive amounts of historical and actuarial data about life expectancies that go back 600 years. They know the odds of you dying at any time, based on numerous factors about your life, and they also know the likelihood that you will keep your policy from one year to the next.

But the long-term care industry goes back only a couple of decades, which means LTC insurers had to make some guesses about whether you’ll file a claim, how long you will live after you do file, how much those benefits will cost and the likelihood you won’t cancel the policy before needing to file a claim. And many of those assumptions were just plain wrong. As a result, the insurance companies are not earning enough in premiums to pay all the claims that are being filed. So they are raising the rates.

Because insurers knew they were making guesses on their actuarial assumptions, they gave themselves the right to raise rates — it’s in your contract. But to actually impose a rate increase, they must get the state insurance commission’s approval. Is that approval a rubber stamp? No, it is not; regulators often reduce or reject price increases. So if an increase is approved, you can be certain that the commissioners believe it is necessary. The alternative is for the insurance company to go out of business — and that’s exactly what many have done.

Yes, the situation stinks. Many consumers have not been aware that rates might increase. And many are seeing much higher increases — like your 70% hike — than anyone expected. Despite all the negatives, it’s good that you have LTC insurance. As advisors, one of the saddest things we see, financially and emotionally, is people needing care and having to deplete all their assets in a few years because they didn’t have coverage. Often a healthy spouse is left impoverished.

Your coverage, despite its cost, is important, and we wouldn’t advise you to get rid of it. If you feel it is unaffordable, see if the insurer will let you reduce the benefits in exchange for lowering the cost. Instead of canceling out of anger and frustration or writing letters to the media and regulators to demand correction — sure, go ahead and do the latter if you like, there’s no harm there — what you really need to do is talk with the insurance agent or financial advisor who sold you the policy.


Long-Term Care Insurance: A New Perspective

Rising Costs Require a Fresh Look.

Skyrocketing LTC insurance costs in recent years — including increases of as much as 130 percent — have turned an already expensive product into, for many, a downright unaffordable one. This has created a massive quandary. After all, one of the biggest financial threats facing you is the cost of long-term care. Some 70 percent of Americans aged 65 and older are likely to need these services at some point, according to the Department of Health and Human Services.

A private room in a nursing home costs an average of $92,378 per year (and as much as $120,000 in urban areas, such as New York City), while the average cost of an assisted-living facility is $43,539 a year, according to Genworth. Although the average nursing-home stay is three years, 20 percent of today’s 65-year-olds will need long-term care for more than five years, according to HHS — and women tend to need care more often and for longer periods than men do (because they live longer).

Compounding the problem: LTC costs are not tax-deductible, and they are not covered by health insurance or Medicare. So, if your spouse suddenly needed to move to a nursing home at a cost of $8,000 per month, how long would it be before you faced financial devastation?

But the rising costs of LTC have also driven the premiums you will pay for LTC Insurance. In 1994 an LTC policy that provided adequate, appropriate protection would cost about $1,500 per year — annoying, but tolerable. Today, that policy costs $6,500. The worst part is that the price increases don’t merely affect today’s buyers of LTC policies. They apply to all previous buyers.

Unlike life insurance, for which premiums are guaranteed never to increase, the cost of LTC policies can rise over time — and rise they have. Prices are getting so high that many people either can’t afford them or simply are unwilling to pay the $12,000 or more per year it takes to insure a married couple — especially since they don’t know whether they’ll actually use the insurance.

Despite all this, long-term care insurance is something you can’t afford to be without. Policies are expensive because the cost of care is expensive, and while paying 10 grand or so a year is unpleasant, it’s far better than spending 100 grand every year for several years if care is needed.

So, it’s a matter of rocks and hard places. The situation has become dire, and so a new approach to LTC insurance is needed; one that will balance your need for coverage against the rising costs of that coverage. Please note that partnership plans rules can vary by state so please seek the council of professional before purchasing.

If You’re Under Age 50 and Do Not Have Good Personal and Family Health Histories, or If You’re 50 or Older and Don’t Currently Own Long-Term Care Insurance:
You should consider purchasing LTC insurance if you haven’t already done so. In addition to suggesting that you compare traditional LTC insurance policies with LTC state partnership plans, you should consider hybrid LTC policies.

When you buy a traditional long-term care policy, you pay monthly, quarterly or annual premiums. When you need assistance with two or more activities of daily living (walking, eating, bathing, toileting, dressing and transferring from bed or chair), you qualify for benefits under your policy. Your policy will dictate how much money you will receive and how long you’ll receive it — and whether your benefits will rise with inflation. The more benefits you want, the more the policy will cost. If you exhaust your policy’s benefits but still need care, you’ll have to use your savings and investments. If you run out, you’ll become eligible for Medicaid.

It’s that running-out-of-money part that caused states to create partnership LTC plans. After discovering that many people were going broke paying for care — forcing state-funded Medicaid programs to take over the costs — states created an incentive for you to buy LTC insurance (reducing reliance on Medicaid). The incentive: Instead of requiring you to spend all but about $2,000 of your own money on care in order to qualify for Medicaid, the states let you keep as much money as you received in LTC insurance benefits. So, if your policy pays you $300,000 in benefits over several years before reaching its limit, you get to keep $300,000 in assets and still qualify for Medicaid.

Partnership policies can be complicated, and in some states, they are ridiculously more expensive than traditional policies. This is why a careful analysis of each is required to determine which is better for you. Both types of policies suffer a mutual drawback: If you never file a claim, you never get any money back, regardless of how much you’ve spent on premiums. That fact has always been annoying. But when we add to it the fact that premium costs have soared and are likely to rise further, coupled with our expectation that long-term care services will become virtually extinct in coming decades, hybrid policies are now more attractive than they were.

But let’s be clear on this point: Hybrid policies are not perfect. It’s just that, comparatively speaking, traditional and partnership policies or even less so. In other words, hybrids haven’t gotten better; the others have gotten worse — making hybrids more worthy of consideration than they used to be.

What makes a hybrid different from traditional and partnership policies? Life insurance. Yes, instead of offering benefits payable only when care is needed, hybrid policies offer the opportunity to get back some of the money you pay in premiums. Money is returned to you if you cancel the policy without having received benefits or to your heirs if you die without having received benefits.

Hybrid policies often cost more in the first year than traditional or partnership policies. But over time, thanks to the ability to get some or all of the money back, hybrids can prove to be less expensive. Hybrids also let you lock in the cost: Once the policy is purchased, the annual premium is guaranteed never to rise — eliminating the worry that rising costs will make the policy unaffordable. And because of the cash value/death benefit features, medical underwriting for these policies is sometimes more lenient than for the other policies. All these factors make hybrids worth considering today.

If You’re Under Age 50 with Good Personal and Family Health Histories:
Congratulations, you probably don’t need to purchase LTC insurance. Instead, you should consider self-insuring, meaning you should save as much as possible (including what you would have paid in LTC insurance premiums) so you have the funds to pay for long-term care services, should you or your spouse or partner need them.

In the past, LTC insurance was often recommended for people under age 50. That position has changed for two reasons. First, today’s policies cost significantly more than they did in years past (and you can expect further increases in the future). Second, those who ultimately use long-term care services typically don’t need them until they’re in their 70s — and sometimes not until their 90s. That’s 20-40 years away for the under-50 crowd.

And we believe advances in exponential technologies — including medical innovations in science, neuroscience, physiology and psychology — will eliminate the need for long-term care by 2030. This means that people under age 50 with good personal and family health histories are not likely to need LTC services — ever. So, no need to pay for such insurance.

If You Already Own a Long-Term Care Policy:
If the current price of your policy is making it unaffordable, talk to the agent or financial planner who provided it to you. Recognizing the price issue, many insurance companies are letting policyholders alter their contracts to make them more affordable. Changing the waiting period, daily benefit, years of coverage, inflation protection or other features could reduce the annual cost while ensuring that you still have protection.

It might also be worth comparing your policy to others, including hybrids. Ask your insurance agent or financial planner to show you proposals. But be careful that an agent doesn’t try to persuade you to buy a new policy simply so he can earn a fresh commission. Keeping your policy might be your cheapest and best option.

If You Don’t Have a Long-Term Care Policy:
Talk to an independent financial planner for help in determining whether a policy is in your best interests, and if it is, have him or her recommend one that is affordable and meets your needs.


A Conversation You Should Not Avoid

Everyone should discuss long-term care.

There are many topics that are unpleasant to talk about but that must be discussed anyway. Near the top of that list is the cost of long-term health care. Considering that two of three adults over 65 will require long-term care at some point and that the average annual cost is $87,600, according to Genworth, the nation’s #1 seller of LTC insurance, it’s a conversation we avoid at our own peril.

Talking about your future need for long-term care — and how to pay for it — is the first step in creating a viable plan. Yet few people want to discuss it, according to Genworth’s recent survey. In fact, most would rather get a root canal, the study found.

Why the reluctance to talk about LTC? More than 60% of adults admit to feelings of anxiety and fear, sadness and depression, confusion or a sense of being overwhelmed, Genworth found. “Think about your parents or grandparents or even yourself. Does anybody want to think about becoming frail or having Alzheimer’s? That’s why we don’t plan.” “We just shut down. It feels overwhelming,” says psychologist Barbara Nusbaum. When there’s no planning, “family crisis, family conflict and much anxiety” are likely to follow, she says.

The good news is that people are more willing to make long-term care plans once they are informed about the cost — and the likelihood that they’ll need it.

Annual Long-Term Care Costs                                         
Homemaker services –  $43,472 – cooking, cleaning and running errands           
Home health aide services – $45,188 – hands-on personal care, but not medical care           
Adult day health care –  $16,900 – social support services, including personal care and transportation, medication management, meals, and personal assistance                       
Assisted living facility – $42,000                                       
Nursing home (semiprivate room) – $77,380
Nursing home (private room) – $87,600

Talking about your (or your parents’) long-term health care needs may not seem like a pleasant task, but an independent, objective, fee-based financial advisors, can smooth the process by talking with your spouse or parents for you. And placing LTC inside a comprehensive plan that meets all your (or your parents’) financial goals can make the issue far easier to digest.

If you think you’ll just take care of your spouse yourself — or that your kids will — you probably need to come up with another strategy. While family members might handle the task, you could be destroying their lives by asking them to do so.

Indeed, according to Genworth:

  • One-third of caregivers devote 30 or more hours of their time each week. The average is 21 hours per week.
  • Nearly two-thirds of caregivers (65%) say they missed work. They worked less (losing income), were late or absent (risking their jobs), lost their jobs outright or had to change careers.
  • Nearly half (46%) said providing care impacted their own health and well-being.
  • One in three (34%) indicated that caregiving negatively impacted their own family life.
  • Three in five (58%) reported spending so much money on care they had to reduce what they spent on meals, clothes and cars. More than a fourth (27%) said that they cut spending on birthdays and anniversaries.


7 Mistakes to Avoid When Buying Life Insurance

Buying life insurance can be a confusing process if you’re not prepared for it.

You wouldn’t buy a house or car without some comparison shopping. The same should be true when buying life insurance — another major purchase with long-term implications. The number and types of products available can be confusing, causing people to make common mistakes. Here are seven of them:

Looking Only at Price
Whether buying temporary (term) or permanent insurance, consider the company’s financial strength and the policy’s guaranteed features. If you’re buying life insurance with a term policy, compare the death benefit, the cost of the policy and the insurer’s rating to competitors. Such “apples to apples” evaluation can help you get the most insurance for the longest term at the best rate from a strong company.

If you need permanent insurance instead of (or in addition to) term, also compare the assumed interest rate that each policy is offering. Decide which of all these variables is most important to you, make sure the others are equal, and then solve for the variable you’re emphasizing. A good independent, fee-based, objective financial advisor can help you do this.

Automatically Buying Term Life Only
With longer life expectancies, today’s 30-year term policies are cheaper and more cost-effective than ever, and usually best if you don’t need life-long coverage. But some people have more than one need for insurance: for example, to ensure that a surviving spouse won’t lose the home while protecting the children from estate taxes. For such reasons, you may need a permanent policy, or even two policies — term and permanent. Your advisor can help you decide what best meets your individual needs.

Not Buying Enough Coverage
Consumers often underestimate the amount of insurance that’s needed to properly protect their families. How much money your survivors will need and how long they’ll need it are key factors in determining the amount of coverage that’s right for your family. Your advisor can help you with this calculation.

Considering Illustrations as Fact
When selling permanent insurance policies, agents like to give people a form called an “illustration” that demonstrates the cost of insurance and the future cash value of the policy. But be aware that the numbers you see on life-insurance illustrations are merely projections. They are not guarantees (unless you see that word printed there!) and the reality could be very different from what is illustrated. The actual interest rate earned by the policy might be lower than projected, the premiums might be higher, and other costs could rise if the policy is a non-guaranteed contract. Don’t give too much credence to policy illustrations.

Viewing the Purchase as a One-Time Activity
As with the rest of financial planning, evaluating life insurance needs is an ongoing process, not a one-time product purchase. If you bought a policy 20 years ago, your death benefit may be much less than what you need today, because your income and expenses are likely higher than they were. It’s best to review your insurance needs every few years, or whenever you’ve experienced a major change in income/expenses, marital status or the birth or death of a family member.

Are You a Tobacco User?
You’ll get far better rates if not. Tobacco users usually pay more than twice as much for insurance as nonusers. Some companies treat tobacco use more favorably than others, so it’s important to comparison shop when buying life insurance.

Cancelling a Policy Before You Obtain the New One
Term life insurance rates have dropped dramatically in recent years, making it worthwhile in many cases to switch insurance companies. But if you’re going to replace a policy for a new, lower-cost one, don’t do it until the new one is in force.


What’s a 702(j)? It’s Not a Retirement Account.

Don’t use life insurance as an investment vehicle.

You may have seen ads — particularly on the Internet — touting a retirement account called a 702(j) or 7702 that promises a guaranteed tax-free return of up to 60 times that of a standard bank account. The ads describe the 702(j) as a way “to retire with an extra $4,098 per month” and claim that it is used by “Washington insiders” and well-known billionaires. Should you open a 702(j)? Should it replace your 401(k) or IRAs?

Well, a 702(j) or 7702 isn’t a retirement account at all. It’s a life insurance policy. The name, like the 401(k), is lifted from Section 7702 of the Internal Revenue Code, which regulates life insurance contracts. Clever move by the promoters: By linking a section of the tax code to a permanent life insurance policy, they manage to associate their product with retirement plans. In fact, these policies are designed to provide insurance coverage for your entire life. An inherent feature of these policies, therefore, is cash value: Over time, the cash value increases, and tax law lets you borrow against it tax-free.

The trick is this: In a “702 policy” pitch, you pay extra premiums (more than the policy requires) in order to deliberately increase the cash value — from which you later borrow. This lets the promoters tout the policies as providing “tax-free retirement income.” (The loans are tax-free because they really are a return of your own money, and any excess you get — say, from interest earned — reduces any death benefit your survivors get when you die. In other words, you’re taking money from your spouse and kids, not the insurance company.)

Not only is the above problematic, but the 702 strategy also carries serious risks. If you don’t repay the loan, any investment gains borrowed could become taxable. Interest may be charged on loan balances, and much of the premiums you pay can be eaten up by commissions and fees.

And investing in a permanent life insurance policy to save for retirement could mean diverting assets from your 401(k), where you might get an employer’s match — truly free money. You also could lose out on the tax deductions you get by contributing to your 401(k) or IRA.

High-net-worth individuals are often the target of 702 sales pitches because they’ve maxed out their 401(k)s and IRAs. But they can move on to taxable investment accounts. Don’t use life insurance as an investment vehicle. Use it for its one intended purpose — to protect someone who would be financially harmed in the event of your death.

Whether you need life insurance, and whether it should be a term policy or permanent insurance, is something you should discuss with an objective, fee-based financial advisor. There are no get-rich-quick ways to finance your retirement. You must do it through careful planning and consistent saving in workplace retirement plans and IRAs.


Q&A: What Are 770 Accounts?

A deceptive sales pitch to help insurance agents sell certain kinds of life insurance products.

Ric Edelman is a co-founder of Edelman Financial Engines. The following is taken from his weekly radio call-in show.

Question: A friend at work asked whether I’d heard of 770 accounts. I haven’t read anything about them in your books or heard you talk about them. Is it something only for the ultrarich? Can you elaborate?

Ric: The “770 account” is nothing but a deceptive sales pitch to help insurance agents sell certain kinds of life insurance products.

One of the most basic concerns for financial planners is making sure their clients have sufficient life insurance coverage. They help them get the right kind and amount at a cost that you might find surprising.

Unfortunately, there are still a lot of insurance agents around who make their living selling high-commission policies known as whole life, variable life and universal life. But these agents have a problem: People are better informed today about insurance than they were, so they’re better able to resist sales pitches that are not in their best interest. This forces those agents to devise ever more creative ways to sell a very old product.

The 770 account is just the latest example. There’s no validity or legitimacy to it. The only people touting it are the insurance agents and their employers, who are trying to make a living selling it. The notion is absurd. Stay away from anyone who pitches it to you.

By the way, the name was borrowed from the Internal Revenue Code. Section 7702 deals with taxation of life insurance. I’m not sure why it’s called a 770 account and not a 7702 account.


Q&A: Is Life Insurance a Waste of Money?

Why life insurance is important and not a waste of money

Ric Edelman is a co-founder of Edelman Financial Engines. The following is taken from his weekly radio call-in show.

Question: My wife and I bought two whole life insurance policies 30 years ago in the amount of $40,000 each for a monthly premium of $65 for both. Now the carrier says it miscalculated, and the monthly premium from now on will be $158. Because it referenced my policy only, I am expecting a similar notice about my wife’s. We are not willing to pay the higher premiums, so our only alternative is to cash out the policies and no longer carry life insurance, which at our ages (I am 73 and she is 64) would be only for burial anyway. Doesn’t this situation show that paying for insurance is a waste of money?

Ric: I agree with you that, in your case and based on what you’ve described, continued ownership of the insurance policies may indeed be a waste of money. However, please don’t conclude that you have wasted your money by paying for the policies all these many years.

When you purchased the policies 30 years ago, you didn’t have as much wealth as you have today. Had either of you died 10 or 20 years ago, the death likely would have constituted a devastating financial loss (not to mention an emotional one) — and the insurance would have reduced that crisis for the survivor. Consider that you’ve been paying for auto insurance for decades. Do you consider your money wasted because you’ve never been in an accident? Of course not. Insurance is the only product you buy where you hope you never use it. But not using it doesn’t mean the expense is a waste.

What might have been wasteful was purchasing whole life policies. They are far more expensive than level-term policies. Other than that nuance, I think you can be proud that you protected each other financially over the past 30 years and that you are now updating your planning to recognize that this protection is no longer needed — enabling yourself to save some money by cancelling the policies.

So rather than say you’ve wasted money, I’d say you’ve done a good job with your financial planning. Well done! Please talk to your financial advisor and let him or her confirm that you really don’t need the policies and that cancelling them is indeed the most economic approach. As whole life policies, there might be cash value that you can salvage — and potential tax consequences for doing so.


Have You Had ‘The Talk’ With Your Children?

No, not ‘that’ talk. The other ‘talk.’

Have you talked to your children about … money? Ideally, it’s not just one conversation, but an ongoing dialogue that begins as soon as your children are able to ask questions and continues after they’ve become adults living on their own.

Maybe you can’t teach a preschooler the complexities of using credit wisely or how to make good investment choices in a 401(k), but you can teach them the important role that money plays in our lives. You can build on that foundation at every age level, using age-appropriate illustrations, examples and real-life strategies. Here are some ways to have “the money conversation” with your children at various life stages:

Preschool Years: Starting Simple
You can start talking to kids as early as age 2 or 3 about money, using simple concepts like the fact that everything costs money — the food they eat, their clothing and the house they live in. But go beyond these necessities, explaining that new toys and video games are things your family could do without if necessary. Offer them new toys a few at a time rather than showering them with abundance.

Elementary School Years: Building the Foundation
Give allowances as soon as the kids are old enough to understand the concept. Require them to spend a little (to learn the joy of having money), save a little (to learn the concept of delayed gratification and the importance of saving for a long-term goal, like a bicycle or Xbox), give a little (to learn the obligation of helping others who are less fortunate) and pay tax a little (to learn the reality that you don’t get to keep or spend everything you earn).

You accomplish that last item by withholding 10% or 20% of their allowance; invest it without their knowledge and give them the account when they’re ready to buy a car or go to college. If the account did well over that time, you’ll be a hero while simultaneously teaching them the power and benefits of long-term saving.

At age 6 or 7, teach children about prioritizing their money. For instance, at a toy store, instead of letting them pick anything they want off the shelf, try giving them $5 or $10 and letting them select something that fits within that price range. If you buy them anything they want, they’ll expect this treatment throughout life, developing a sense of entitlement. You sure don’t want to see that trait in them when they are teenagers or graduates.

From now until about age 12 or 13, make it clear that your family’s money is the result of your hard work. When they’re old enough and able, have them do chores so they can earn an income. Then give them the power to choose how they will spend that money, and help them choose to save some of it.

Smartphones start to become popular with this age group. They cost hundreds of dollars, plus monthly bills, replacement costs and insurance. Make sure your kids understand the risk and obligation of having a smartphone, or you might suffer the fate of parents who have been surprised to receive huge phone and texting bills. (The same is true of cars — fuel, insurance and repairs are costs that go well beyond the monthly payment.)

High School Years: Increased Responsibility
This is a critical time to establish a financial collaboration with your children. Encourage them — and help them — to get a part-time job to help pay for car insurance (their share of your higher premium, or insurance on their own car once they can afford to help pay for one), their gasoline or a portion of a family car payment.

Hold them accountable for sharing some of the costs they incur at school and elsewhere. Once they receive a paycheck, set guidelines on how much should be earmarked for car expenses, college or other big-ticket items. This age is also the time to highlight the importance of a quality life, rather than the quality of one’s possessions. For example, a brand-new car at age 16 may bring an immediate thrill, but the financial pressure it brings can lead to regret.

College Years: Real World Experience
Your child is now ready for an adult conversation about his or her finances. Make sure he or she knows how credit works and how to use credit cards wisely before those cards put the child in serious debt. Show your child how to decide whether it’s better to buy or to lease a car.

Use your own experiences — good and bad. Explain how credit cards can bring a false sense of financial reality, making one less conscious of where money is flowing and how much is being spent. Talk about how struggling with deep debt can take an emotional and even a physical toll. The late teens and college years are also a good time to make your children aware of your financial, tax and legal advisors — in case something should happen to you.

Adulthood: The Journey Continues
Even after college, when your kids are true adults, “the talk” continues. Make sure they know the contents of your estate, details of your will or trusts, bequests and money they are in line to inherit, and where you store vital information, including passwords to data you keep online. Tell them whether you want to stay in your home or how you feel about various forms of assisted living. Discuss any power-of-attorney needs. And always encourage a spirit of cooperation among adult siblings.

Have you initiated “the talk” — the one about money — with your children? Do you keep it going? If you do, your whole family will be richer for it in more ways than one.