Zionsville Times Sentinel

August 7, 2013

Teaching kids money management

Zionsville Times Sentinel

---- — Mom! I’ve got enough to buy that Lego set I wanted,” son exclaims as he receives his check for the July mowing jobs. I have to admit, I’m pretty proud of how hard he has worked and glad he can enjoy the fruits of his labor.

Money management ranks as one of the most important lessons parents teach. Ask anyone who has lost a coveted job because they couldn’t sell their house or dodged phone calls from creditors; they know debt enslaves. When we teach principles for money, we enable our children to both provide for and protect their futures.

Begin by setting up an accounting system with your children and teach them to work within it. For younger children, our family loves the “cups system.” We have four cups — one for tithe, one for long-term savings, one for short-term savings and one for fast cash. Tithe, or charity, teaches children that money has a larger purpose than simply filling their desires. Long-term savings goes into investments, teaching children to think long-term with their money, college fund, car fund, even retirement. Short-term savings are designated for larger optional purchases such as a pricey Lego set, presents for family members, or vacation spending. Fast cash funds a splurge at the candy shop or movie.

In our home 10 percent goes automatically into tithe and long-term savings. Children get to divide the rest. Every time they get money from a job, allowance or birthday check, out come the cups. Children quickly learn that the splurge on candy may cost them going to a movie with a friend if they depleted their fast cash; thus, they quickly learn to think ahead.

As children transition to the teen years, they should become increasingly responsible for their expenses. In our home — children don’t get luxuries unless they pay for them. We generally start with a pay-as-you-go cell phone. While more expensive in the short term, children running out of minutes and having to pay before they can talk again instills an understanding of the limits of the phone and avoids unexpected bills that rival the national debt. If our children want to drive, they must pony up the car insurance. This teaches both that driving is a privilege rather than a right and encourages them to be ultra-careful as their expenses go up if they speed or have an accident.

Other families may choose to foot these bills and will certainly pay for necessities such as school supplies and clothing. Determine what you spend on your teen and help your child create a budget that includes each item — school expenses, clothing, etc. Then, at the beginning of each month—hand the money to your child and have her pay the bills. Teens soon develop the skills of budgeting, getting payments to creditors on time, and creatively saving on essentials so that they can enjoy a few more luxuries.

If parents do this right, children learn to live on less than they make. This one lesson conquers 90% of money issues. As parents create a culture where children see the funds go down as the spending goes up, feel the pinch of splurge spending when a bill comes due, and enjoy the perk of saving well—they develop a consciousness of the money’s power and its limits.

Important — parents, don’t bail children out. When the money is gone, your child must do without. Let life teach your children while they are within your protection so that they avoid the larger money issues plaguing so many. While painful for parent and child, losing the cell phone till money for the bill can be saved teaches children to be far-sighted with spending in a way no lecture can rival.

Parents can be supports. Asking questions to keep children focused helps greatly. For my own son, I asked, “Hon — how will you be able to buy all this and pay for the Lego set you wanted?” The gentle reminder helped him stop to evaluate his choices. He put back most of the glow sticks permitting him to still get the Lego set. More, he had money left over for camp spending. That’s the goal — awareness of money’s limits and enjoyment of its benefits.