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This year, I will be turning 30 and I am happy with where I am in my life, but lets back track just 5 years. At the age of 25 in 2011, I was financially flabby. I had debt coming out of my ears and did not know how to control my spending. I was stressed about being able to make it to the next paycheck. A few years later, I found some financial experts and started to turn my finances around. About this time, I also found my future wife and did purchase an engagement ring with debt.
We eventually got married and had a plan to pay off all of our debts as fast as possible. We cut expenses, threw large sums of money at our debts and paid off all of our debts except my student loans. In our first seven months of marriage, we paid off $29,301.64. We did leave the student loans alone, because I was a year and a half away from receiving teacher loan forgiveness. During that time, we built up a large savings account as a safety net in case the loans were not forgiven. Gratefully, in August of 2015, my teacher loan forgiveness application was approved and we were officially debt free.
At the age of 28, I was debt free for the first time in my life and my wife and I have continued to do financially smart things. I am glad that I have learned and caught on to the importance of being financially smart, but sometimes I wish I would have figured this out sooner. I wish I would have learned this in high school. I didn't and struggled for years. Thankfully, I figured it out in my 20s.
As a soon-to-be father, I have been interested in the importance of parental guidance and I have even written a couple articles about this topic. Since, we can't count on the schools to teach our children how to handle money, then we have to be the ones to teach them. Therefore, I am writing this article to put down strategies that I want to use to teach my children about finances. I hope that you can find these strategies beneficial, and you will try to use them with your children.
The first and most important thing to teach kids about money is that money does not just randomly appear. The parents are not a bank and the children should not expect a hand out of money from their parents. The kids have to be taught that money comes from hard work. By teaching our children this important skill, we can avoid an entitlement attitude that can be so often found in the younger generations.
I plan to teach my kids about hard work, by expecting them to complete chores around the house as I was expected to do as a kid. The completion of the chores will lead to the child earning some money. If the kid decides not to complete the chores, then they won't get paid. This is how they will be treated in the real world and they need to learn this before getting a job.
The one problem with this plan, lies in the fact that some kids won't care about the money and will never want to do the chores. This is possible, and this is when the parents will need to step in and guide the child of the expectation of completing chores. It could sound something like this, "In this family, we complete our chores because we love each other. Even though you don't care about the money, you will still be expected to do the chores. So, you have a decision to make. Will you complete the chores on time and make a little money or will you be forced to complete the chores, receive no money and lose your video games for a week?" As with any child, there will need to be consequences, if the child does not complete the task assigned to them.
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What to do with the Earned Money?
We all use money in three very specific ways. These ways are spend, save or give. When a paycheck comes in, I save some of it, spend some of it and then give some of it. Since, this is how we use our money as adults, then we should teach our kids how to use money in three specific ways. This can look different for kids, based on their age.
As we are teaching young kids how to handle money, I think it is good to use visuals so they can see the money. Younger children will have a hard time understanding the numbers in a bank account. Instead have them place the money into jars or anything similar on their dresser. There should be three jars to represent each of the three ways to use money. There is no specific way to break up the three categories, as long as the child is putting the money they earned in all three jars. For example, they could break five dollars up in the following ways: ($2 spend, $2 save, $1 give) or ($3 spend, $1 save, $1 give). The amount in each category doesn't matter, but the importance is that the children understand the importance of placing earned money in all three categories.
Around this age, would be the perfect time for a parent to begin teaching their children how to balance a check book and about budgeting. I plan to open a checking account for my kids at this age, with the abilities for me to monitor their purchases and their budget. I would take this time to teach them about the 10% tithe and teach them how to use percentages to decide on how much should go in each of the three buckets (spend, save, or give). While they are teens and living under my roof, I would expect the following minimums: 10% give and 50% save, with a maximum of 40% for spending.
Each month, I plan to sit down with my children and discuss their budget and plan for their income that month. This will allow my children to understand how money works and how to plan ahead for expenses that are coming up. I also plan to implement an idea that was created by Dave Ramsey, called the 401-Dave. This plan allowed the children to save money for a car and any money that the kid had when it was time to purchase the car would be matched by the parents. I would set a limit to the match, otherwise you could be stuck matching $8,000.
I plan to play a big role in my kids handling of money, while they are even in college. As a college age student, the kids are learning and can be influenced to make bad financial decisions (along with other bad decisions). I had to pay for my own college and I learned a lot from that experience. There is nothing wrong with a child paying for their own college, but my wife and I have made the decision to save and help pay for college.
This will not be blank check. Instead, our children will be told of their expectations up front. We will have access to their checking accounts and will be able to monitor all of their expenses. Since, we are paying for their college, they still have to follow our rules. If our rules are not followed, then they would lose the great opportunity of having their college paid for by their parents.
Some of you may think this way of dealing with college is kind of extreme. I personally believe that if we want our children to be successful and have all kinds of opportunities, then we have to teach them and guide them along the way. As a father, I would have been guiding them with their finances through high school, but then just let them fly in college. This doesn't make sense. This is the first time in their life where they will be on their own. They will still need guidance and still need help. I want their college experience to be a good one and I don't want them getting into financial trouble, because I just let them fly.
Would you let your child just run out in front of a car? No, you wouldn't. You would tell them to stop and grab their arm. You saved their life, because you loved them. This is the same with finances. You have to be hard and have high expectations all of the time. If they mess up, then you can have a discussion about the mistake and move on from there. If they continue to make this mistake, then there has to be consequences. They will try to push our buttons, because they are trying to see our breaking point. However, all children want and need stability, guidance, and discipline. As parents, we owe our children life lessons through discipline, because we are teaching them to become great adults. Kids need to learn the important aspects of handling and the best way to do this is with the guidance of their parents.