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Family vacation finances 101

With summer just months away, it’s time to start thinking about vacation. If the shaky economy has made you more reluctant to finance a trip solely on credit, you’re not alone.
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With summer just a few months away, it’s the time of year when many families start thinking about vacation. The good news is that there are fantastic family travel deals at every turn, and this year’s summer vacation could very easily cost you 30 percent to 50 percent less than what you would have paid last year.

But if the shaky economy has made you more reluctant to finance a vacation solely on credit, you’re not alone. “We’re going through a national mood change, where too many people were cavalier about tackling debt and we’re all waking up at once,” says Daniel Ray, editor-in-chief of, the web’s largest credit card comparison site.

Admittedly, the least fun part of planning a vacation is figuring out how you’re going to pay for it. But coming up with a plan and then sticking to it is very empowering, say financial experts, and parents should look for ways to involve the entire family. “Vacation planning is full of opportunities to teach kids valuable personal finance skills,” says Janet Bodhar, who writes the Money Smart Kids column at Kiplinger’s magazine and is the author of “Raising Money Smart Kids.” “The most important thing kids need to learn about managing money is how to make choices, which comes up all the time in planning a family vacation,” she says.

Here are 10 smart moves to help you finance your vacation and boost your family’s money IQ:

Work toward a common goal
Turning your vacation fund into a family project is a great way to teach kids how to save. “It’s very hard for anyone, even adults, to save for a rainy day because that goal is so abstract,” says Bodhar. “It’s so much easier when you’re saving for something tangible like a vacation.” Think about simple ways to save here and there to meet your goal. Get in the habit of collecting your loose change in a vacation jar — better yet, let the kids decorate it themselves. Organize a family garage sale. Encourage your children to let you sell their unwanted toys on eBay or Craig’s List. As you track your progress, says Bodhar, “keep pointing out all those valuable life lessons. Small amounts really do add up over time. Having patience really can pay off.” If kids are old enough to understand how credit works, reiterate that every dollar saved before your trip means a dollar less that you’ll have to repay later.

Another great reason to enlist your kids’ help in saving up for a vacation is that they will probably enjoy the trip even more. “There’s definitely a link between how much effort and sacrifice goes into something and our appreciation for it,” says Bodhar, “so it’s an excellent idea to find a way for kids to have some skin in the game.”

Look for teachable moments
Why are we driving a few hours to a lake resort instead of flying to the Caribbean? Why this hotel and not that one? How are we going to pay for this? “It’s very important that kids get to see their parents’ decision-making process in action, though you always want to keep the discussion age-appropriate,” Bodhar says. When children are young, there’s no need to get into specific numbers. But as kids get older — and certainly by the time they hit their teens — Bodhar recommends bringing actual costs into the conversation.

Put it on auto pilot
“The very best way to save money is for someone to take it off the top before you even see it,” says Bodhar, who suggests setting up an automatic transfer from your checking account into a savings account earmarked for your vacation. “It’s the best psychological trick I know. Even if it’s just $25 or $50 a month — it doesn’t have to be a lot of money — it’s the least painful way to save,” she says. At the end of a year, a $50-a-month contribution adds up to $600 — perhaps not enough for a grand getaway, but also not chump change.

Devise a pay-off planLet’s suppose that you’re only able to save up half of what your vacation will cost. Bodhar says it’s essential to come up with a plan to pay off the remainder within about six months of returning home. “It’s so important not to get in over your head,” she says. “For most people, six months is a manageable amount of time. You don’t want your vacation to take two years to pay off, certainly not in this environment. It’s too easy to let it just sit there as a lump of debt.”

Be social
Want to make it easy for Grandma and Uncle John to contribute to your vacation fund? Consider opening an account at SmartyPig, an online piggy bank where you can set a savings goal and target date. While you save, your money earns interest in a FDIC-insured financial institution to the tune of 3.25 percent APY, one of the most competitive rates in the country. And if you decide to make your goal public — you can even post a widget to your Facebook or MySpace page — your friends and family can also make donations. Almost one in five SmartyPig customers are saving for a travel goal, according to Mike Ferrari, the company’s co-founder and COO. “In fact,” says Ferrari, “I have two kids, and my wife and I are saving on SmartyPig for two trips right now.”

Put it on layaway
Some hotels are introducing layaway programs to let guests pay off their bill even before they arrive. Since March 1, guests at Apple Core Hotels in New York City have had the opportunity to use layaway to finance a future hotel stay at any of the group’s five properties, including La Quinta, Red Roof Inn, Comfort Inn, the Hotel at Times Square and Ramada Inn. “Guests can start with a down payment of as little as $20,” explains Vijay Dandapani, the President and COO of Apple Core Hotels. “Then they have the opportunity to build up the pre-payment in the time leading up to their trip.”

For travelers, it’s hard to argue with the combination of reasonable prices, flexible payments, and risk-free booking that comes with the Apple Core layaway plan. “There’s a misconception that New York City is expensive,” says Dandapani, pointing out that the rack rate for Apple Core Hotels is between $139 and $159 a night in July 2009. “We don’t impose a timeline with our layaway plan,” he says. “Guests can pay little by little, or they can pay off the balance all at once when they check out of the hotel.” What if a guest changes her mind and cancels? “She gets her money back,” says Dandapani. Best of all, opting for Apple Core’s layaway plan guarantees that you nail the best price. “If the rates go up, your reservation is locked in at the lower rate,” explains Dandapani. “And if the rate goes down after you book, we’ll refund the difference.”

The way Dandapani sees it, pay-before-you-go plans are an option whose time has come in the hotel industry. “We’ve seen that there’s a huge hesitation on the part of consumers to spend money and build up debt,” he says. “Our layaway plan lets our guests avoid a big charge on their credit card at the end of their stay. Frankly, I’m surprised more hotels aren’t trying it.”

Play the percentage game
Need another good reason to save up or pay off as much as you can before you go? Maxing out your credit cards on vacation can hurt your credit score big time, says Ray of “Most experts recommend that your credit card debt should not go above 30 percent of your total credit limit.” Ray suggests spreading out your expenses across multiple cards, so you stay below 30 percent of the limit on each individual card as well as on your cumulative credit card limit.

Don’t forget to count your paycheck
Now for some good news: You probably don’t need to save up 100 percent of your vacation cost anyway, says Bodhar of Kiplinger’s magazine. Any traveler who receives paid vacation days from his employer can finance a portion of the vacation with his current paycheck. “Whatever you would have spent at home for food and recreation during the same period can be put toward your vacation budget,” explains Bodhar. So if your family of four typically spends $200 on groceries and $70 on recreation and entertainment in a week, that’s $270 you won’t have to save for a weeklong getaway.

Get a new card
While it may seem like the last thing you need is another credit card, opening a new account can have a significant upside for travelers. “A rewards card, especially one that can earn points for free hotel stays or air miles, can be a good idea for some people,” says Ray. “You always get a bonus for signing up, and while credit card issuers have become less generous with their rewards programs, there is greater availability so it’s easier to cash in your rewards now than it has been in the past.”

Give kids fiscal responsibility
While you’re away on vacation, each kid should have his or her own souvenir money to spend. “There’s a saying,” laughs Bodhar, “that kids will spend any amount of money as long as it’s yours. But the reverse is also true — they are much more conscious of what they spend when the money is theirs.”

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