Ask Sheila

Is it ever OK to borrow?

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Borrowing money is a very serious decision. When you borrow to pay for something, you are placing a burden on your future- the burden of paying back what you borrowed, plus the extra money that lenders charge you called “interest”. If you can avoid borrowing, you should do so, and NEVER, EVER borrow to buy dumb stuff as happened in my book, Billy the Borrowing Blue-Footed Booby. Sometimes things are so expensive, you just can’t save enough to buy it. A good example is a house.  It may be OK to borrow to buy a house IF it is a good house, you can afford the payments, and are disciplined about paying down your debt. I explain more about borrowing to buy a house in Princess Persephone Loses the Castle.

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What is Insurance?

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 There’s safety in numbers. Maybe you’ve heard that saying. There are dangers in life.  Bad things sometimes happen. The chance that something bad might happen is called “risk”.  And with most risks, we can usually handle them better if we confront them as part of a large group, instead of facing them alone.  That’s the whole idea behind insurance. 

 

Some bad things can be very costly. People's homes can be damaged by fire. They might be in a car wreck. Or they might become seriously ill.  Covering the costs of those kinds of serious events are beyond the ability of most people to handle on their own. That’s why we have insurance companies. They allow people to transfer the risk of those kinds of losses to a large group, to be shared by all. 

 

This is how it works.  In exchange for a regular fee called a “premium,” insurance companies make a written, binding promise to people that they will cover most of the costs when certain types of bad things occur.  That promise is called a “policy” and the people who are protected by it are called the “insured.” The insurance companies collect premiums from millions of people and keep that money safe in something called a “reserve”.  When insured people suffer damage, the insurance companies give them money out of those reserves to help them cover the costs.  

 

There are many different types of insurance depending on what kind of protection a family wants. Insurance which protects homes and other kinds of property from damage is called “property insurance”.  Insurance which protects people from damage or loss to their cars is called “auto insurance”.  Insurance that protects them from medical expenses when people get sick is called “health insurance”. And insurance that helps protects families from lost income and expenses when a loved one dies is called “life insurance”.  (Sense a theme here?) 

 

Insurance doesn’t cover everything.  Enough people need to be willing to pay premiums for the protection so that the insurance company can accumulate enough money in reserve to cover losses. And most insurance companies will put a limit on the total amount of money that can be paid to cover a particular loss. They will also usually require insureds to bear a little of the cost on their own. That’s called a “deductible”.  In this way, insureds will want to take steps on their own to prevent or reduce the risk of loss.  For instance, installing smoke detectors and having fire extinguishers handy will reduce their risk of loss from fire. Driving safely and below the speed limit will reduce their chances of being in a car accident.

 

Some losses may be so small that it makes more sense for families to cover the expenses on their own. For instance, you probably routinely lose your snow mittens in the winter. (I always did.)  Your parents would probably find it easier to deduct the cost of replacing them from your allowance instead of trying to buy insurance…. Unfortunately, kids can’t buy insurance to cover the risk of losing their allowance. So, keep track of those mittens!

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Should I Save For College?

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Yes!!! The earlier you start saving, the more money you will have by the time you are ready for college. And if you put that money in a bank where it can earn interest, that’s even better. Interest is something banks pay you when you save. (It’s something they charge you when you borrow.)  Through the magic of  “compounding,” saving even small amounts over a period of years can grow much bigger, as I explain in Rock, Brock, and the Savings Shock. 

 

Unfortunately, college can be really expensive.  So encourage the adults in your family to help you save money too.  If it’s still necessary, it may be OK to borrow for college. Just make sure you can afford to repay your loan and will receive a good education that will help you get a job and earn more after you graduate.  Millions of people in this country live with the burden of student loans they cannot repay. Don’t let that happen to you.

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What was your inspiration for writing Money Tales?

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I’ve worked in jobs requiring a knowledge of money most of my life.  That includes several years as a government regulator where part of my job was to help people keep their money safe.  I’ve seen lots of schemes and scams that rob families of their hard-earned money.  I've also seen families lose money because they lack basic skills in managing it.  Through my kid’s books, I want to provide children with foundational knowledge so they can avoid common mistakes and protect themselves from financial tricks and traps later in life.

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Why do you write picture books?  Aren’t picture book readers too young for financial education?

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Kids are never too young to learn about money.  They “get” its importance at an early age. I discovered the joy of picture books when my own children were small. My husband and I would read aloud to them every night.  I could see the influence those books were having on how they understood and viewed the world. It occurred to me that picture books could be a great way to help children develop a healthy understanding of money. An added benefit: parents read the books with their children, so I would be sneaking in a bit of financial education for them as well.

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When did you know you wanted to be an author?

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Since grade school! I remember writing science fiction stories at my desk. Other students would line up and read the pages as I wrote them.  I loved giving my friends a good story to enjoy. Unfortunately, writing fiction is not an easy way to make a living. I eventually went to law school and became a lawyer and government regulator.  I still wrote, but grown-up things like op-eds for newspapers or articles for academic journals. And then, in the early 2000’s, I rediscovered the joy of writing stories with the publication of my first Money Tales book, Rock, Brock and the Savings Shock. There are now 8 books in the series, including Money Wizards, about inflation, and Daisy Bubble, about speculation, coming out in October of 2023.