To continue from our post on August 31st, I want to give you a look at some of the actions I took to attempt to raise a financially responsible and financially literate child. Many of our clients that have been around for a while have met my son, Mike. He has been out of college for several years, works, and fully supports himself. I want to start much earlier in the story…
It all started when Mike turned 2. At age two, we began giving him $2.00 a week in allowance. He was also given two jobs to earn his allowance. What can a 2-year-old do – he helped feed our cats and set the table. Yes, it did take longer than if I just did it myself. The intent was to start teaching him responsibility. Each year on his birthday, his allowance went up by $1.00, and we added another job. Over the years, he was given the responsibility of doing at least one load of laundry a week and having to cook dinner one night a week. These are life skills that I hear about so many kids going off to college, having no clue how to do.
One key for us was having Mike learn good money management skills. Therefore, we did not just hand Mike his allowance and let him toddle on his way to spend it as he wished. From the very start – there were requirements attached to his allowance. 10% had to go into his college fund. Imagine a little boy going up to the bank teller and asking to put his two dimes into his college fund – I still smile at the image of it today. Granted, Mike, at age 2, had no idea what college was and had no idea what a bank did. What this instilled in him was the habit of putting money in the bank. It also made him realize from a young age the anticipation was that he was going to college.
Another 10% of his allowance had to go into long-term savings. Over the years as he aged, this bought him his electronics – from Gameboys to a PlayStation. It helped pay for extras he wanted when we went on vacation. Eventually, it helped him purchase his first car. When a child is young and wants something big that they need to save for, hanging a picture next to the jar that contains the money being saved for is a great visual. For that matter, it can be a great visual for us as adults. This 10% was for future purchases.
Were there times that Mike wanted to take that savings and do something different than the original intent? Absolutely! Sometimes we would say yes, he could do that because he would make a good argument as to why. Sometimes, we would say no. If he were looking for immediate gratification on some toy that caught his eye, we would typically say no. If, for example, however, he decided he no longer wanted this video game and instead wanted a Gameboy game, we would probably allow that exchange. This long-term savings was meant to be spent with careful consideration. The time it took to save for items forced that delay and for him to really consider what he wanted.
I have seen how this impact can be on adults too. It happened with one of our coaching clients. They wanted a tablet when tablets were starting to come out and were about $400. We put a savings account in place to start saving for it. By the time he had the $400, the cost of the tablets had gone down significantly, but even more significant is the client decided they no longer want to spend that kind of money on a tablet. We have all heard the walk away and come back 24 hours to see if you really want something.
20% of Mike’s allowance went into short term savings. From a young age, those of you who know Mike are aware that he was all about computers and video games. So, most of his short-term savings was spent in this realm. It also bought lots of Pokémon cards and books over the years.
We required Mike to contribute 10% of his allowance to charity. At 2 and 3, his favorite charity was to drop his dimes into the dog and cat banks that you see near cash registers for the animal shelters. He also dropped his coins in the many red kettles for the Salvation Army. There were always opportunities and Mike happily gave. It was natural for him to give since he started doing it at such a young age.
The other half of his allowance was for Mike to spend as he wished. It might be a trip to the dollar store and get a bag of green army men. It might be a candy bar. He might save it for a few weeks and purchase a $5 or $10 toy. What it did stop is the constant “can I have” every time we went to the store. If he forgot his money, he did not get anything. If he did not have enough money, he had to wait. As he got a little older, he had to plan more to get what he wanted. It provided him with the opportunity to think about how money was being spent.
This method of managing his allowance lasted until Mike was 13 and then we upped his financial education. At age 13, his allowance jumped dramatically to $350 a month. Simultaneously, Mike became responsible for all his expenses other than food at home, shelter costs, medical expenses, and required educational costs.
Mike had to learn to budget. If we went out to dinner, he had to pay his way if he went. He became responsible for purchasing all his clothing, including school uniforms. Mike had to set aside funds to pay for activities, entertainment, school supplies, personal hygiene items, gifts, and more. We would purchase his plane ticket if needed when we went on vacation; he was responsible for the other expenses. He had to purchase any electronics he wanted – computer, cell phone, video games, etc. He was still required to set aside 10% for college.
If he wanted to buy his lunch at school, that came from his money. This smart kid figured out if he took his lunch from home, he had $15 a week he could spend on something else. How many times do we talk about taking our lunch to work or making coffee at home versus buying it when we are out to save money?
Since name-brand clothes were not a high priority, Mike was willing to purchase no-name brand jeans to have more video game money. How many kids out there expect their parents to purchase the name brand item, but tell them to spend their own money and it is a different story?
After purchasing his car and getting his license, he expected friends to chip in gas money when they traveled together to make sure he could keep his tank full, pay his portion of the auto insurance and keep up with repairs and maintenance.
Mike gained experience in managing a checking account and credit card before heading off to college. We paid for his tuition, room, board, and books while he was at school. Mike was responsible for all his expenses – entertainment, food, and clothing while in college. It was gratifying to see how confused he was by classmates who did not understand how to do laundry, who continually called Mom & Dad for money, and had no concept of what their education was truly costing.
There were times we gave Mike the opportunity to earn extra money, just like we may be given overtime opportunities. I often made sure that I bought some of the necessities for Christmas to make sure he had them. And, yes, occasionally, we would treat him to dinner out or something extra. He could not count on that and knew it was the exception and not the rule.
Today – Mike lives on his own in Syracuse. He pays all his expenses. He even managed his expenses when he had to go ten months of paying double rent. His student loans are paid off. He is getting ready to purchase the parts to build a new computer, with the money from his “play” savings account. I know he has a savings account for vehicle expenses, including saving towards the next vehicle and a travel savings account. He does not carry a balance on a credit card. I know he is saving for retirement.
I am incredibly proud of Mike. I see the number of children in their late 20s or early 30s still getting financial help from or living with their parents. I see the amount of debt that parents are carrying and often now see their adult children getting into the same situation. We see individuals not willing to wait and save for a purchase rather pay interest while carrying the debt on a credit card. If you have young children or even those in their teenage years, please carefully consider the impact that you can have on their financial success if you put in the time and effort now to teach them the skills.
I hope this post provides you with some ideas to help get your children off to financial success. It is not too late, regardless of how old your children are. You may have to get them to unlearn bad habits. It should be worth the effort in the end. If you need help, please consider contacting us.