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.
No comments:
Post a Comment