Tuesday, September 02, 2008

My two cents

Niffer wonders how her daughter will grasp money. Which got me thinking about what we do for our kids.

When it comes to money, I want my kids to learn three things:
  1. Money is not infinite.
  2. Desires are infinite.
  3. As a result, you will *never* have enough money to buy everything you want, so think before you spend.
To achieve this, we've done three things. My parents did the allowance thing, but the other two are ideas entirely the brainchild of me and my wife.
  1. When they start getting a concept that money can buy things, we give them an allowance. For the oldest three, we started at 4 years old, giving them $0.25/year (e.g. the 5 year old gets $1.25, the 7 year old gets $1.75 & the 10 year old gets $2.50). Of the allowance that they get, we force them to give 10% to God and put 10% into savings. They get to spend the remaining 80% however they wish.

    There are a couple of things we hope to achieve through this. First, just like we give them pencils and paper to practice writing, we give them money to practice using it. It also alleviates a lot of pressure when we go to the store. A common question that is asked is, "Can we get candy?" (You can also substitute tons of worthless trinkets for "candy".) And the answer is always the same. We smile and give an excited, "Sure!" but then follow-up with, "You have money to pay for it?" Almost always the answer is, "No". To which we say, "Oh that's too bad, because they take money here." One time, my oldest got cute and said, "I've got pretend money." To which my wife responded, "Well, that can buy a pretend candy bar."

    The really hard part of giving them an allowance is also giving them the freedom to spend the 80% however they want. My older two frequently come up with grandiose ideas of how they're going to pool their savings so that they can buy something big. Something, which I usually approve of. But instead, they're usually at the store unable to resist buying Pokemon cards - which are really expensive and almost entirely useless. When that happens, it takes every effort I have not to jump in and forbid them from doing it. Mostly I succeed, but sometimes I don't. What I have to remember is that if they don't experience the feeling of "being broke" now, they'll not learn how to avoid it in the future. I'd rather that they wasted small amounts of money on pokemon cards at 10 years old instead of wasting large amounts of money on useless crap at 25. I hope that they learn that it's their previous spending choices that determine their later spending capability. If I step in and make the choice for them, that's a lesson they'll never learn.

  2. The 2nd thing that I do is that I have my kids help me pay the bills. I pay almost all of our bills electronically. So I give the kids some jobs to help me pay the bills. Their job is to

    1. open the envelopes
    2. throw away everything except the actual bill
    3. tell me how much it's for
    4. file the bill into the filing system.

    I then take care of sending an electronic payment to whomever it is. This is especially useful when it comes to the credit card bill, which is (invariably) the largest bill. One that we pay off in full every month. My kid will say, "Credit card bill is big again."

    "Yep, but take a look at everything that it bought"

    "The grocery store is on here a lot. And wow, the gas station charges are really expensive."

    "Yes. Those expenses have been going up a lot lately. It means that we have to figure out how to spend less somewhere else."

    "Where have you been spending less?"

    "Well, I don't golf as much as I'd like. I give your mom backrubs instead of paying someone for them. We switched cell phone providers recently to one that was cheaper. We've also been more frugal on the family vacation. That's why we stayed where we did and why we didn't go to that expensive place that you and your brothers were really hoping for. Basically we do a lot of little things, but where most of it comes from is... well... let's just say that I hope you get a college scholarship, son." My oldest two are the only ones who are capable of helping me pay the bills, and they laugh at the joke that they are probably on 90% sure is an actual joke. It is a joke, but I don't mind letting them wonder a bit.

    In any case, I hope that by watching me pay the bills, they see that life is expensive. I also like the fact that they get to see me giving 10% of our money to God and putting at least 10% into savings just like we demand of them. (These are tasks that take place at the same time as paying the bills.)

  3. Finally, from the 7th birthday on, we decided to change how birthday's were handled. So the oldest two no longer get a gift and a party from us. Instead, they get $100 to use as they see fit for their birthday. They can plan a huge party and use what's left over for a gift, or they can buy themselves a huge present. Either way, they get a chance to learn about budgeting. The oldest likes to have friends over. So, he almost always puts a large percentage into the party. He buys the cake, the napkins, the paper plates and plastic ware. He also buys all of the items for the "goodie bags" and prizes for the games. At first he suggested that he invite some friends to a local theme park. "Great idea!" we said, "Which two friends do you want to take?"

    "Only two?"

    "Well, yeah, that place is expensive. Along with your ticket, you just barely have enough money for that." He had been planning to spend some money buying himself a computer game. Suddenly an inexpensive party at home with *LOTS* of friends began to sound really good to him.

    Child #2 did the party last year in similar fashion to his older brother, but I suspect that next year he's going to skip the party altogether and spend all the money on a gift for himself. That'll be hard for us, but we're just going to have to bite our lips and let him do it. Time will tell.
So that's it. That's what we do to try and teach our kids about money. Any other suggestions?


Jimazing said...

You have some really clever ideas. I am going to pass them along to the parents of my grandchild. :)

Niffer said...

Like I said in my blog, I like your ideas a lot! My husband and I talked about them and we might implement them all. We were going to do the allowance thing just like you said (10% charity, 10% savings), but the birthday money and helping with bills makes sense as well. The one thing you didn't mention that we will most likely do is have the kids keep a checkbook register instead of cash. That way they keep track of how much money mom and dad owe them. My husband even took it one step further and wondered about getting them a debit card, but I don't know how old one has to be to use a debit card. That seems a bit strange to me. However, the hubby was trying to come up with a way of solidifying the connection between the plastic and the money. Anyway, thanks for sharing!

mjh said...

Hmm... checkbook and debit cards. I wonder about those. They might help with the general problem that we have of ensuring that the allowance gets paid on time.

Must think on those ideas.

Niffer said...

Just to clarify... we didn't have checkbooks. We just had one of those registers where you write down the amount of money you have in your checking account. Only for us, the "checking account" was really just money that mom owed us. Then if we wanted to buy something, Mom would pay for it and we'd subtract that amount from our "check book" total.

mjh said...

FWIW, I have implemented the checkbook register. I made one on my own in a word processor. The kids now just have to know their balance when they want something. It also eases the allowance thing because it's written down when we've given them their allowance.

Thanks, Niffer, for the idea. That was a good one.

mjh said...

Additionally the register also reflects the way that I primarily interact with money. Through my financial institutions. They keep track of how much I've spent, add it all up, and give me access to a statement.

We've been using it since Christmas, and it's turned out to be much less work than trying to get and keep track of cash... for both us and the kids.

Niffer said...

I just now noticed that you implemented the check book registers. I'm glad I could help!

sqpeggy said...

These are great suggestions! How old were your kids when you started them off with the bills?

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