For a little over 5 years, I spent some time in the Financial Services Industry. Throughout that time, I sat across the kitchen table and the desk in my office from many families, couples, parents, and business owners alike going over their financial situation and assisting them in putting together a plan for their financial future.
You’d think that people would be concerned about something like that, right?
I learned over those 5 years that most people don’t pay attention whatsoever to their finances in terms of the future. Now, before you all want to burn me at the stake and tell me how rude and judgmental that sounds, hear me out.
What I mean by people don’t pay attention is that, while they may budget accordingly to make sure ends get met and bills get paid accordingly, most households do not look at their financial future very often—if at all, usually until they are far behind the curve ball.
So during that time in my career, I vowed to teach my kids the value of a hard-earned dollar and more importantly, what to do with that dollar after earning it.
I’ll break it down really simply for everyone. It’s not perfect, it’s not the only way to do it, but it’s a great way to teach your kids the importance of every dollar they earn through their allowance, a gift given to them, or anything of the sort.
Here it is:
IF you can afford it, you should pay your children an allowance within your budget. What we do is pay each of our children a dollar amount equal to their age.
There are two types of chores: Work for Pay and “Because I Said So.” You have to understand the difference.
Work for Pay examples: Taking out the garbage, cleaning up after dinner, setting the dinner table, cleaning the bathroom, sweep and mop the floors, or even mowing the lawn. (Obviously, keep it age appropriate people…I don’t make our 7 year old mow the lawn…yet)
“Because I Said So” examples: Brushing their teeth before bedtime, keeping their room cleaned up, bed made, toys put away, putting things back where they came from, etc.
Work for Pay chores are chores kids should be doing that are age appropriate and above and beyond what is necessarily expected of them. “Because I Said So” chores are what are considered to be “for the good of the household.” It’s the stuff they should be doing anyway for the good of everyone around them.
Speaking of college, how are your children getting there? If you’re unsure, you should probably talk to your local Financial Services Professional about that. (But I digress…old habits die hard…sorry.)
Then comes pay-day…
Do you give your kids their full allowance and say, “Have at it, kid. You’ve earned it.”?
NO. Slow your (bank)roll Mom and Dad.
This is your opportunity to teach your child a life skill and habit that can assist them the rest of their adult life.
For every dollar earned, it should be broken down in 4 ways. Use jars as a physical illustration if you have a younger child, or give your kid who’s old enough to understand math an old check register and sit down with them and go over their new “deposit,” then make the following withdrawals:
Yes, Mom and Dad, you are now their Personal Banker…don’t actually hand your kid money…keep it and save it for them…My kids haven’t seen an actual “paycheck” in a long time…but they have some nice accounts built up, but more on that in a moment.
10%–to charity or tithe (if that’s your thing.) It’s good to teach your kids the importance helping those less fortunate or a cause they believe in. One girl who took a financial class I used to teach supported the Humane Society. Let them pick what’s exciting or important to them or it won’t stick. What’s cool too, YOU get the tax deduction when Uncle Sam calls. Plus, it’s fun to take that money to that place every week and see the pride in your child’s face as they give to others.
20%–Mid-Term Savings. This is money that is “save to spend.” If your kid has something that they are saving for, for example, like some Legos set they’ve been dying to have. Sock that away for them to spend it. This is obviously within reason. Use your judgment with your child. Things like this you can institute a 401(k) matching plan…you don’t want your kid to be 18 by the time he saves up for that skateboard at the store he likes. Tell them you’ll match them half if they save the other half with this portion. It teaches them deferred gratification and shows them a skill they can use later in life like saving for a vacation, or the down payment on a car, or home…etc.
20%–Long-Term Savings. This is the money you are starting WAY early for your child. Tell them this is for their future. For emergencies. For LIFE, when it happens. It is even a great way to get them to simply save. This jar, or pot, or whatever…doesn’t get touched.
and the 50%–Instant Gratification…spendable income. Let them do whatever they want with it…BUT…as their parent…question EVERYTHING. Teach them that just because they have it to spend, doesn’t mean they should.
Every time they say they are going to buy something, ask them if they’d rather just put a little more toward that skateboard…or video game…or roller blades…whatever it is! The percentages can change! But there should be a little of each of these in there.
Teach your child to second guess themselves at every turn they make with their finances. They’ll be more cautious as an adult in spending that extra $500 to buy that new TV when they should just sock it away for a rainy day, rather than buy something they really don’t need.
So guess what? You are now instilling in your children to live off 50% of the income they bring in. Imagine that in your own finances had you started out doing this. But guess what? It’s not too late.
I’m not even in the industry anymore and won’t benefit one single dime for you taking the time to meet with a Financial Services Professional in your area to help you get things on track…but seriously…I highly recommend it. I could even recommend some great people to work with if you really wanted to know who I personally trust. But find someone YOU trust and ask them some questions. Oh yeah…and buy some Life Insurance for crying out loud. Yes, the answer is YES, your family will most likely struggle to make ends meet after losing your income.
By the way, I didn’t come up with this—I’m not that smart…look up Money Doesn’t Grow On Trees: A Parent’s Guide to Raising Financially Responsible Children by Neale S. Godfrey. It’s a great read for parents of kids of ANY AGE. From the time they’re old enough to be able to utter the words “I want that!” to the time they’re a teenager….they should begin to learn financial sense.