Dollars and Sense

This contribution is written by Rob Neves
 
We don’t leave learning most skills to chance anymore. When we see that something is essential for our kids’ safety, growth and well being, many parents take the precaution of providing specific instruction to help them acquire that skill. Having your kids in swimming lessons, little league or Sunday School are all ways parents can be intentional about their kids’ exposure to the skills that they feel are too important to leave to chance. Most of us wouldn’t worry about letting our kids play with playdough without instruction, assistance and guidance (although it can be difficult to remove from some fabrics and most nasal cavities) but we would take a much different approach to letting them ride a bike for the first time. I think so many of our challenges as parents starts with determining if this new element of your child’s life is a playdough or bicycle skill.
  
In my opinion, some money skills require a “playdough” level of parental involvement and some money skills are definitely at the “bicycle” level of supervision. Money in itself isn’t evil, but how we feel about it and what we do with it can have an influence on just about every facet of our lives. Having personally experimented with the trial and error approach to money management before, I can tell you that no amount of wishful thinking will make bad money choices less expensive. I can also tell you that I wanted something much different for my children. I can’t determine what will work best for your family, but I wanted to share some thoughts on what has worked for us. We had a few ground rules that we used to try to help these skills translate into life skills.
 
Life Lesson Lesson Plan
  
Some things cost money When my kids were old enough to ask for “purchased” things we started giving them allowances. We decided that purchased things were not the staples of life (food, clothes, family obligations, education) but were things that made life more entertaining or comfortable (candy, toys, games, rentals etc).  We followed Barbara Coloroso’s, suggestion that the allowance be given with the stipulation that it needs to be divided into an amount that would be saved, an amount that would be shared and an amount that the child could spend.  As our kids aged we increased the allowance and the number of categories to reflect different elements of the child’s life. For example The “Savings” piggy bank became college savings bank account and I-pod savings piggy bank.
    
Mom and Dad are not a source of money It was understood that this was our money, but that we would let the child use it as a tool that we provided so they could learn money management skills. As allowance was not a gift, and we were under no obligation to provide this tool, and the amount, frequency and conditions of its use could be modified to make the lessons more meaningful.
   
Caring for others is an expectation not a job We decided not to tie the allowance to the completion of chores (I have a problem with paying my kids to help our family or family members) but made the completion of chores an expectation with benefits that had translated into other perks in the family, but not in their bank account.
     
Some times you don’t get to choose where you spend your money We tried to keep the allowance timing and amount fairly predictable, but we did alter it occasionally.  For example when the transmission needed to be replaced on our van, we suspended allowances for a few weeks. We feel that it is important to realize that sometimes life forces us to alter our plans. Once one of our kids decided not to invest in each category, so we had to reduce their allowance to an amount they received when they were much younger. We reinstated the funds once we were comfortable that we could trust the child to meet the all conditions for use of our money.
     
Borrowing money cost money  We have a rule that except in extreme situations, receiving your allowance early means you receive less money. How much we deduct is arbitrary, (it usually depends on how much incentive or disincentive we want to provide for that specific purchase) but the kids are great at reminding us how much it cost their siblings.  The goal here is help them delay gratification, not to become loan sharks.
    
Things bought on credit cost way more When our kids are looking at products that they may want to purchase, we routinely have them figure out the whole cost including taxes, shipping and handling and any other supplemental purchases (batteries, etc.) that will need to be made. They can then either choose to save for it or they can have us purchase it and we can deduct it from the savings and spending portion of their future allowances. The catch here is that they miss out on twice as much allowance as the amount they borrowed. A $5 purchase costs them $10 in lost allowance. We want them to know that if you purchase something on a credit card and pay it back in minimum monthly payments, you will pay back anywhere from two to 5 times as much as the initial purchase.  This way, our kids can decide on how much they are willing to pay for the convenience of not saving.  We think of it as an “impatience tax”. Wouldn’t so many purchases be easier if we had to consciously choose between paying $500 for a pair of shoes today or $100 at the end of the month?
    
Interest earned is free money Once our kids had saved a few dollars, we opened a no fee savings account for each of them. We also selected a bank that sent out monthly statements.  (All kids love getting mail) and we keep track of the interest earned. We think of it as a part time job that pays them for saving. Every month they look at the interest earned as a paycheck for doing nothing, we look at the increase in interest amounts as savings rise. The better you get at saving, more you get paid. Initially the pay is horrible, but the work is always easy.
     
If you need more money you have to find work  We have never given our kids so much money that they didn’t need to find extra income. Every time our kids have been unhappy with their rate of income, we have helped them problem-solve how to increase it. They have grown pumpkins, taken on odd jobs for neighbours, held yard sales and sold crafts, lemonade, freezies and homemade cards. Every time they have started a business, we create a very simple business plan (how much does it cost us, how much will we charge, how will we divide profit, how will we let others know, how is the work shared) and I lend them the money to start. At the end of the business venture, we figure out how things went and if there are any lessons to be gained for the next partnership. If they learned something, I usually give them the money that I invested.
    
Gifts aren’t income, don’t count on them  Sometimes we will randomly give them some money, it is usually spare change and these gifts come with no conditions. They are just expressions of caring in the same manner that flowers or candy might be. Because there are no expectations the gift can be used as they please. The key is that the gifts are random and never so frequent or so generous that they compromise the value saving and planning.
      
You sh
ould decide what to do with your money, not let money decide what you do   Perhaps the most important lesson in all of this that we have goals. When we have goals we are purposeful and intentional in what we do. This applies to money as well. I don’t know where every last cent of my money goes, but I do know how much I am saving, how much I am giving, how much my obligations (bills) cost me and how much I can spend, if I so choose.  I have friends that hate their jobs but are so burdened by debt that they have to keep working at those jobs because “The money is great”. I don’t want money, regardless of how great, to decide what my kids do with their life.  I want money, like all the other tools they have at their disposal, to be something that they feel comfortable with, that they have developed strategies for it safe and effective use and with which they have worked to develop good habits.

Our belief is that once you develop good money management habits, you will always have them to use.  I guess in some ways it is kind of like riding a bike.