Monday, November 29, 2010

Teaching Kids What To Do With Their Allowance

Once your kids have a little money, it starts burning holes in their pockets. It is time to help them learn how to manage that cash.

I recommend teaching kids to divide their money into three separate banks. You can use actual piggy banks, cute little decorative boxes, or simple bags to sort the money into a savings bank, a spending bank, and an offering bank. The money in the offering bank is what kids bring to church each Sunday to put in the collection plate.

Encourage your child to think of something she’d like to save for. My daughters like to save for special dolls or toys, as well as for summer camps. The money in the savings bank stays put until enough has accumulated for the desired item or activity to be purchased.

The spending bank funds your child’s pocket money. This covers those little “must haves” that kids spot while out shopping with you. My kids rarely bring their money with them when we go shopping, so I purchase items for them and they repay me when we get home. They also use this money for souvenirs when we go on vacation, as well as for buying donuts at church on Sunday morning.

I let my kids decide for themselves how much money to put into each bank. Amazingly, they generally put the bulk of it towards offering. If your kids do a pretty good job of splitting their money between their banks, let them do it independently. It does not need to be an even split, but each bank should be fed something every time your child gets paid. If you notice all of the money going into one bank, help your child learn how to split it up.

If you have a great idea for teaching kids to manage their money, please share it with us by commenting on this post.

Monday, November 22, 2010

Putting Your Teens On A Salary

It is a sad fact that most Americans know very little about handling money. They assume that as long as they don’t bounce checks, they have everything under control. It is up to us as parents to make sure we have a solid financial understanding so we teach our children good habits.

One way to help our kids enter adulthood on a solid financial footing is to give them plenty of experience before they graduate from high school. Just as a new driver must have a learner’s permit before earning a license, kids need a period of practicing with money.

Around the age of 12 (depending on your child’s personality, maturity, and attitude towards money) you can put your child on a salary. If you have been doing a good job keeping a budget of your family’s expenses, you will know how much money you spend on your child’s needs each month. This includes things such as clothes, school supplies, hot lunch, sports fees, gifts for birthday parties, socializing, etc. Rather than hold on to this money until your teen needs it, give it to him at the beginning of the month (or on the 1st and 15th of the month) in the form of a salary.

Once on a salary, your child no longer comes to you with requests for money. He must manage his needs based on what he has in his “account.” Many banks won’t let kids open checking accounts until they are 16 (and they can’t write checks without identification anyway), so you may have to create a mock account at home. I like the popular “envelope system” where kids divide money into separate envelopes for each anticipated need. For example, if they typically spend $30 a month on gifts for people, they put $30 cash in their “gift” envelope and make purchases for their friends from that money only.

As the parent, you continue to pay for food eaten at home, as well as family dinners out and family activities. If your child goes out to eat with her friends, she pays for her own food from her salary. Parents also pay for school fees and other non-negotiable school expenses. Extras like yearbooks can be paid for with the student’s salary or may be a birthday, Christmas or graduation gift from you.

As soon as your child is old enough, open a checking account and teach her how to manage it. Set aside time each month to balance your checkbooks together so you can make sure your child is forming good habits and keeps her financial records in order. When your teen is successful in keeping her checkbook under control, let her have a debit card. It is very important that she learn the difference between a debit card and a credit card, and when to use each type of card, before she goes to college or moves out on her own. Most college students graduate with credit card debt because they never learned how credit cards work. Some colleges say more students drop out due to credit card debt than actually graduate. Their monthly payments become so high that they must work full time to pay them off.

The salary system works well for students who are doing well in school and participating nicely in the family. If your teen is struggling in school, the added responsibility of managing his own expenses may be overwhelming. If your child is disrespectful at home, she may not have earned the privilege of having money. Remember that most of the things kids buy are not true needs, and are therefore privileges.

If you don’t feel like you have a strong understanding of finances, make a commitment to educate yourself. Start today. In a changing economy, you must actively stay on top of your education so you can teach your kids to make smart choices. I strongly recommend Dave Ramsey’s Financial Peace University for getting a good foundation for your financial education (although his information on mutual finds needs to be updated). Robert Kiyosaki’s Rich Dad Poor Dad series is also a good source of information.

Monday, November 15, 2010

Teaching Older Kids The Value Of Work

Have you ever met a kid with a “what’s in it for me” attitude? Do you have one of those kids? This week’s post can help conquer that attitude with an allowance system that teaches kids the value of money, encourages them to save for a goal, and helps them learn the joy of helping.

By the time kids are eight years old (and younger kids who are mature in their understanding of money), they are ready for a new allowance system. The “all or nothing” program that keeps things simple for younger kids just doesn’t meet the developmental needs of older ones.

The allowance system for 8 – 12-year-olds is based on earning beads for helping out around the house. Start by making a list of jobs needing to be done and by getting a small jar for each child and a supply of beads. Let the kids know that when their expected jobs are completed, they are invited to do additional jobs for beads. Expected jobs are the things they got allowance for when they were younger. In my house, the kids need to take care of the dog, keep their shoes and socks put away, and keep their bedrooms and shared bathroom clean. These tasks are expected to be completed simply because they are part of keeping a nice living environment for the rest of the family and because they help us maintain the value of our home (I sometimes have to remind my daughter that her bedroom carpet can’t be vacuumed until she puts away her toys and she doesn’t make enough allowance to pay for new carpet if hers wears out because it never gets cleaned). When those things are taken care of, they can move on to paying jobs.

Each bead is worth $0.25, and most jobs are worth one bead. I break them down into reasonable bites in keeping with the $0.25 price tag. For example, vacuuming the carpeted areas on our main floor is worth one bead, vacuuming the hardwood areas of the main floor is worth one bead, and moping the hardwood on the main floor is worth one bead. However, if someone does all three of these jobs, I am likely to throw in a bonus bead, because that is a lot of work! Other jobs worth one bead are cleaning all of the mirrors in the house, cleaning the counter, sink and toilet in a bathroom, or doing the dishes. Sometimes my kids will negotiate larger payouts for larger jobs. For example, washing my car will earn someone two beads. My kids will also negotiate “package deals” by asking how many beads they can have if they pick up, dust and vacuum the family room. I am always open to negotiations, but my kids also know that I have the final say on acceptable jobs and beads awarded.

My kids also know that I will ask them to do thing just to help out and that no bead will be awarded. If I have already bagged up the trash, I may ask one of them to take the bag to the garage for free, simply because I need help. Don’t let the kids feel like they need to get paid to do anything.

Once we started this system, I was happily amazed at how my kids began helping out more even when they weren’t getting paid. I think part of the change came from realizing that they were capable of doing more than they knew. Moms can help with this by resisting the urge to criticize their children’s work. Don’t expect them to clean the same way you would. They are not as strong or as tall, so adult cleaning supplies, especially the vacuum and mop, can be difficult for them to manage. Reward them for their effort and gently teach them techniques for doing a more thorough job next time. When kids feel successful, they are more likely to try again, even without a tangible reward.

This allowance system is also great for kids who are saving their money for something specific because it gives them control over how quickly they reach their goal. My house looks like a model home the week before a school book fair because my kids are frantically trying to earn as much money as they can. My oldest daughter is saving up for a new guitar, so as soon as her homework is done she gets busy doing jobs. I can tell when my kids don’t have a goal in mind because their jars sit empty for a week or two.

I pay allowance twice a month under this system, just like a paycheck. Payday is on the 1st and the 15th of every month. This payment plan gets kids ready for the next system they will have for earning money when they are teenagers. For more on that, check in next week.

Wednesday, November 3, 2010

Helping Young Kids Get A Handle On Money And More

First off, I appologize for neglecting my blog for so long. Thank you for faithfully checking back and for sticking with me.

Secondly, November is Money Month, so all this month we will talk about teaching kids to manage finances through different, age-appropriate forms of allowance. If your kids aren't in the age group discussed this week, check back next week for tips for 8 - 12-year-olds or the following week for tips for teens.

Thanks again for your continued support. Now, on to this week's post...

Parents often ask me what they can do to get their kids to pick up all of the stuff they leave around the house. In addition to toys, most kids leave a trail of shoes, socks, snack wrappers, juice pouches, sporting equipment, and other odds and ends all over the place.

Between the ages of 4 and 8, it can help to start giving them an allowance. In order for kids to learn how to count money, as well as how to use it, they need to be in charge of some. I recommend giving kids this age three allowance jobs. Make sure they are easy jobs the child can do independently. For example, my children’s first allowance jobs were to feed the dog twice a day, keep their shoes and socks either on their feet or put away, and keep their rooms tidy (remember to keep your expectation of “tidy” age appropriate).

It works well to keep your system simple – if the child does all of his jobs, he gets all of his allowance. If he doesn’t do a job, he gets no allowance. It is too confusing and too much maintenance to pay different amounts of money for different jobs. I recommend paying $2.50 a week. This comes to $10 a month which is plenty of money for kids this age.

When you pay the earned money, pay it in quarters (if you pay $2.50 a week, that means the child receives a very impressive stack of 10 quarters). Then, every night after dinner, have a short time of family cleaning. In my home, we simply call it “15 minutes.” For 15 minutes, everyone works at picking up the debris that accumulated around the house during the day, while I clean up dinner. On Sundays, after 15 minutes is up, I walk around the main living area of the house (not the kids’ bedrooms) and pick up anything left out. The items I collect go into a bag, where they stay for one week. The kids must purchase their things out of the bag the following Sunday for $0.25 per item (this is why you pay allowance in quarters). If they need something before the week is up (like their shoes) they may buy things early for $0.50 each. All items must be purchased from the bag by the end of the week and must be put away once purchased.

This system encourages kids to do their allowance jobs and keep their things put away. You can have your child use a chart to keep track of his work if you want to, although at this age it is generally easy to see if the work is completed or not. If you do use a chart, Target stores carry a cute magnetic one that has many common jobs already listed on moveable magnets, along with blank magnets so you can make up your own tasks.

If you have a great idea for encouraging your kids to pick up after themselves or for handling allowance, share it with us by commenting on this post.

Next month we will talk about handling allowance for 8 – 12-year-olds.