Making Your Own Luck
September 22, 2011 by admin · Leave a Comment
“What’s your goal?” My husband’s question was simple, but I didn’t know if I should bother to share my complete answer, because it seemed unreasonable.
We hadn’t started our family yet, which was a goal of ours. But I wondered if winning Lotto was the only ticket to my other dream: to be able to stay home with our kids for as long (or short a time) as I wanted. Back then, my earnings were almost five times his salary and I doubted we could sustain ourselves on his take home pay alone, especially with the added costs of a baby. Sharing this thought with him might have made him feel badly; instead it motivated him.
”That’s it? That’s the goal?” Tony said, as if he had known it all along. “OK, give me some time, I’ll figure it out.”
I had it drummed into my head from friends and colleagues around me, who were enslaved to the double-income household: “There’s no way you can live on one salary – especially a teacher’s salary.”
Quietly I worried that I had given him a goal that was not within reach. I thought, maybe I could stay home for a year at most. I even started to accept that option, if it came to that. Thankfully, it never did. The more naysayers there were, the more determined he was to make a viable plan.
Stock piling became the first part of the strategy; generating investment income was the other component. We lived as if his salary was the only income we had, and aggressively saved and invested my salary and bonus. That is not to say that we didn’t enjoy ourselves. We made time for some travel; we ate out at restaurants within reason – but the savings/investing came first; what was left over was ours to play with. We put off starting a family until we felt we were on solid ground.
An interesting thing happened along the way. We had the opportunity to buy a small cabin in New England for a great price; it was very tempting and we came close to doing it. It was affordable based on our total income; but ultimately it would have taken us off our goal. When another opportunity presented itself — to move farther from New York City (where I worked) to an area we loved and where we wanted to raise our family– we struggled with the idea. I didn’t want all our savings/investing to dry up because this house was more expensive than the one we were living in. After careful consideration of all the numbers, Tony figured we could swing it, provided I was still willing to commute an extra 2 hours each day until we started our family. With trepidation, I agreed.
Then we faced a series of unexpected events. For starters I became pregnant and soon we found out we were expecting twins. Almost immediately, I ended up on bed rest. Short-term disability gave way to long-term disability, which was less than my salary (although I wasn’t spending any money commuting). When our sons arrived a full two months early, we were stunned. After more than two weeks in the neonatal intensive care unit, they were released to come home – but with all sorts of equipment (like an apnea monitor to detect the cessation of heart beats or breathing and caffeine to keep the heart beat rate up). To add to all this tension, I had used up all my leave and was due back almost as soon as the boys came home from the hospital. I still can’t say how I would have been able to leave my babies under those circumstances – or who we would have asked to take on such a grave responsibility. I am just so thankful that Tony thought to ask the question about my goals – and that I dared to utter it out loud. Otherwise, our backs would have been against the wall.
Many times, there isn’t one right way to reaching a financial goal. Sacrifices, compromises, and non-negotiable items differ by household. The point is the goal kept us focused and shaped all the decisions we made – we passed up opportunities to spend our money in favor of getting us closer to what was our top goal. Most important, had we not planned this out, I would have been headed back to my four-hour roundtrip commute; our preemie babies occupying my every thought. Some call it luck – but I know Tony’s careful planning and our commitment to reaching our (seemingly unreachable) goal had a lot to do with the blessings that came our way.
The financial wisdom I would like to impart is: Don’t be afraid to look at your dreams – even if they seem impossible to reach. Instead of thinking about why you can’t get where you want to go, ask how you might get there. Do this, and down the road, you may find yourself being referred to as the “lucky one”.
Setting the Right Example
September 15, 2011 by admin · Leave a Comment
If there’s one thing that parenthood has bestowed on us, it’s the desire to be a better person. Suddenly with a pair (or pairs) of little eyes watching you closely, you become more aware of your habits (good and bad), your diet, your manners, and your temper – because someone is learning from you. Well, there’s a biggie that most of us haven’t given much thought to: money. For those of you with small ones, consider this time as good behavior training because even if your kids are too little to notice now, recent research indicates that children as young as 8 are ready to learn about money; and, the greatest impact on their knowledge is not any course they can take (if you can even find one) but on the behavior they observe at home. The study went on to say that behavior modification in older children is difficult; the key is to catch them early. So even though many of you have younger children, it’s never too early to get your household on track. This way, the practices your children adopt will be healthy ones that will come naturally to you. These simple first steps will lay a solid foundation:
- When we have dessert, it’s served after dinner – When a child sees that Mom or Dad doesn’t always immediately gratify their retail purchasing urge, it teaches that not everything you want is needed, or some things are worth the wait. With toddlers, the currency can be giving up the bottle or diapers to “buy” something that they want. Having older children partake in saving for a portion of a pricey purchase can help teach them about setting goals and working toward achieving them, as well. In addition, they will start to understand the sacrifices you make to afford your lifestyle.
- Make sure your eyes aren’t bigger than your stomach – Showing children that bills are paid in full and on time sends them the signal that they need to keep a handle on how much they spend. As you write the checks, let them know what you are doing and why you need to pay it on time. If carrying credit card debt is something they don’t see in life, it makes them less likely to abuse the cards themselves. This lesson is the single most important one to your future financial well-being.
- If …. Then … Lessons – Show your kids the power of choices and the consequences to get across budgeting basics (e.g., “If we buy this flat screen TV, we won’t have enough for food.”).
- Do as I Do – There are no greater imitators than kids. If they see you balancing the checkbook (even though they are not sure what that is), they will grow up knowing that is part of an adult routine. As they get older, you can even enlist their help in calling out the check numbers.
- Make Saving a Game – When they are really young, nothing is more fun than the clink of change in a piggy bank, or a change sorter. As they get older, encourage kids to put away a portion of any gift money they get, as well as dedicating a portion to gifting. When they are old enough to get a bank book of their own, take them down to the bank. It will be a day they remember.
- Story telling – Do you have a family member who overcame adversity (such as coming to this country with no money) only to live a successful life? Let them know that Grandpa started up his business with nothing in his pocket. Better yet, let him share the story. Kids love to hear true stories, and they’ll be better off for having heard these words of wisdom.
Starting early in their lives will make all the difference, and it will be time well spent for all of you. Remember: They are watching.
School Year’s Resolutions
September 8, 2011 by admin · Leave a Comment
September may be the ninth month, but for anyone with children, it feels like the start of school marks the beginning of the year. Why wait until January to make resolutions that you know will benefit you and your family right now? An added bonus is that you can get the kids on track by setting a good example. While each family has its own challenges, there is a common theme that most families struggle with: planning and organization. These two issues permeate every aspect of our lives and also greatly impact personal finances and household budgets. By taking steps in the right direction, you can start to feel more in control which begets calmness. Isn’t that a wonderful way to start the school year? Below are some of the most common School Year’s Resolutions and tips on how you can take steps in achieving these goals.
Eat Healthier.
Getting dinner on the table while juggling extra-curricular activities and homework can often lead to poor choices (as in unhealthy and expensive take-out). TIP: The simple act of meal planning before you shop for groceries can greatly decrease what you will buy and what you will spend. Using the local flyer as your guide for sale items, make up a week’s worth of healthy dinners and lunches. Shopping with Pea Pod and other delivery chains may also save time and money, as old shopping lists are saved and a running tally of the grocery bill is ever-present. There will be time to gather your coupons, further reducing the bill. Whether you order on-line or physically go to the store, the one simple step of meal planning with the flyer will ensure you buy the best-priced items and will have ample food for all your meals. Furthermore, when you have a menu pre-set, you are less likely to pick up a pizza.
Organize Closets, the Garage and Pantries.
Wherever stuff lurks there is the potential to save a lot of money. How many times have you had to run to the store to buy something you know you have but couldn’t find (such as scotch tape, a hammer, a flashlight, etc.)? TIP: Group like items as you would in a store. You don’t need to spend a fortune on organizing supplies. Old shoe boxes, clear storage bags, over the door hooks and bags can all help consolidate items based on their use. Gift wrapping supplies, from scissors, tape, paper, bows, and generic cards can all be placed in one shopping bag; common household tools like measuring tape, flashlights, screw drivers and hammers can be placed in a box. Designate a space in the coat closet for umbrellas, hats, scarfs, and gloves so you are not left scrambling the first morning there is inclement weather. Don’t forget to extend this exercise to the food pantry, as well. Then you will know what you need (or don’t need) next time you food shop. When you are organized, less time and money will be spent by your household, guaranteed!
Purge Papers.
From school handouts, to artwork, to junk mail and personal files – paper piles up and things get lost. TIP: Set-up a binder book or expandable file for each child that will house the class contact list, book orders, assignments, handouts, invitations, and artwork that you want to keep (consider framing or hanging a bulletin board to post larger items). Toss junk mail as soon as it enters the house and get removed from mailing lists. Keep an eye on your financial files, as well. Here’s what to keep and what to shred:
- Keep only the current year’s payroll stubs, which can be shredded after you get your W2 and verify that your annual compensation amount is correctly reflected.
- Provided you do not need them to support income tax filings, bills and canceled checks that have already been reflected in your current bank statement can go after a year (exception: hold receipts indefinitely for warranty-items or large ticket purchases for insurance purposes).
- Bank statements. Keep the monthly statements for the year. After you file tax returns, hold on to any checks that relate to your tax preparations (housing/mortgage related expenses, payment of taxes, or business expenses) and your year-end statement. Get rid of the rest.
- Investment statements. For retirement accounts, keep records of all non-deductible IRA contributions to prove that you already paid taxes on these monies. Keep quarterly statements of all investment accounts and make sure the year-end statement matches up before disposing of the quarterly statements. Keep records of purchases and sales of securities for capital gain tax purposes.
- Taxes: Keep seven years’ worth of income tax records and supporting documents (receipts, checks, W2s, 1099s, etc.).
- Credit card receipts. Keep receipts to reconcile against your monthly bill. After verifying that the balance due is correct, shred all but those receipts you need for tax purposes.
- Housing Papers. Keep all documentations relating to the purchase or sale of property for at least six years after you no longer own it. Keep receipts pertaining to all household improvements for tax purposes.
Get in Balance.
Many parents and children are so over scheduled that life has become a series of running from one place to the next (which often results in a “drive-thru” dinner). Take an inventory of the activities and events your household participates in and decide which ones truly fit your family’s need for balance and recreation. Eliminating some may be a sanity-saver and a budget booster.
Making some small adjustments, such as these, can result in a less harried home life. When you know what you are making for dinner, and you know where everything is, there are far fewer last minute errands to the store. When the schedule isn’t jam-packed, you can actually enjoy dinner together and show your kids that down time is to be savored. When the precious commodities, time and money, are preserved, you will feel more in charge of your life and less a part of the rat race. Perhaps you’ll be inspired to stay healthy as a family, and use this found time to go for an after-dinner walk or bike ride. Your kids will function better in a calmer environment, and you’ll be more present to guide them through life’s daily challenges without all the distractions.
As they quietly learn from you, maybe, just maybe they will even be encouraged to make some resolutions of their own.
Lessons at the Lemonade Stand
July 30, 2011 by admin · Leave a Comment
When I was a young girl, summer days had their fair share of running barefoot through the sprinklers and picnic lunches, but it was at the lemonade stand where I learned about the “real world”. My best friend and I would set up the stand on the corner of our street, make the lemonade, set the price (10 cents a cup), put out our sign, and bring the cash box out. We would chant to passerbys and attract as much attention as we could. It was there I discovered a lot about myself (I liked earning money), and a lot about economics and how business works. This summer, why not encourage your kids to set up a business they care about?
Several moms I know have turned their young children’s’ interests in to businesses that they run together (one sells her own handcrafted tutu designs on-line, and the other makes and sells beaded jewelry). Having hands-on experience running a business at a young age can really inspire your child to take their hobbies and passion to the next level. Even if it becomes just a passing interest, the lessons they’ll learn at the lemonade stand (or wherever) will be invaluable. Here’s what I learned all those years ago.
1. Make sure you like and trust your partner. Fighting can kill desire (and profit).
2. Find a partner with skills that compliment your own. My friend was good at promotions. The sign was pretty; she had a good personality and knew a lot of people. I was better at the business side of things, making sure that the lemonade and the cups never ran out.
3. Pay attention to outside forces working for and against you. The weather had to be right — if it was too cold or too hot then no one was out to buy. The rain killed business altogether. Obviously, things sell when there is a demand for it. Cold lemonade near a soccer field where there were games going on meant lots of sales.
4. Make sure your “lemonade” can hold its own with the competition. If you price it too high (and there’s nothing special or different about it) prospects will go elsewhere.
5. Know what you need to sell to break even. Setting a competitive, realistic price means first knowing what you need to make to pay for the entire inventory. If making a profit would mean pricing the item well above what people will pay for the good, then don’t bother selling it.
6. You can do it! The most valuable lesson of all was that I (at age eight) was capable of earning money on my own. Nothing felt better than that! It gave me such a rush of confidence that I was eager to go out and earn more money.
Make sure your kids get a taste of starting something up themselves and earning money from it, and they’ll reap rewards long after the “lemonade stand” has closed up shop.
Power to Your Little People
July 1, 2011 by admin · Leave a Comment
Growing up in a large family, my basic financial needs were always taken care of but as for the extras — it was like a bakery: “Take a number and get in line.” It annoyed me and, at times, it embarrassed me when a friend had the latest and greatest gizmo and I did not. But, it also motivated me to find a way.
I remember getting my older brother to let me clean his room for money, I took local babysitting jobs, and the moment I was old enough to put in for my working papers, I did. Now my first job paid peanuts, because it was a “seasonal” job and didn’t have to pay minimum wage. So for $2.75 an hour, I worked at the local pool; but I was happy as a clam, because I was earning my own dough.
When I left for college, my parents paid the lion’s share and I took out the standard $2,500 government loan and paid all my expenses: books, entertainment, clothes, etc. A funny thing happened. Because I had earned money in the past, I wanted to earn again, and I did not want to have to ask anyone (even my parents) for money. So, I started tutoring for $10 an hour (nice pay raise)! And just as I was getting comfortable and into the groove the boom was lowered: my Dad was retiring and we were moving to Florida. He wanted me to transfer to a state school there. Immediately I knew I had to do something to stop this. I didn’t want to leave, but what could I do? That’s when I learned about becoming a Resident Advisor or “Den Mother.” This job would single-handedly pay my Room and Board and pay me a stipend, and provide me with a phone. Thankfully, I got the job — now I had to sell it to my folks. My father’s reaction was not at all what I was expecting. I thought he might be angry at the lengths I had gone to, to foil his plan. Instead he said that I had thought it through well, had planned it well, and clearly it meant a lot to me to stay where I was. I will never forget the look on his face: it was one of satisfaction. He had done his job well.
Tips for Raising Do-It Yourself Kids
1. Let them have skin in the game. If they want something big, let that be a motivator for them to earn and save their money. You can help them out, but let them “own” a piece of it. It builds confidence, pride, and encourages a work ethic.
2. Don’t let them think that you will always step in. If you practice the law of natural consequences, they will learn very quickly that their actions (or inactions) produce results (good and bad). If they know that they will have to live with these consequences they will tend to be less impulsive and make better choices.
3. Guide them out of the box. Give them creative ideas on how they can achieve their goal, whether it be how to earn extra cash, or how to find something at a better price. Show them how they can “make” their own solution.
4. Clap hands. When they rise up to the task, let them know how proud you are and how proud they should be.
5. Let their youth be an asset. Enthusiasm and energy are great attributes of youngsters. Harness it and direct it toward a goal and watch them accomplish wonderful things. Don’t discourage them with words like, “You’re not old enough.”
6. Build confidence. Let them know that if they want something badly enough they have the power to make it happen for themselves.
Father Knows Best
June 18, 2011 by admin · Leave a Comment
No Father’s Day would be complete without reflecting on lessons learned from my own Dad. “Tony G” – as I affectionately refer to him – had a financial smartness about him that few MBA grads possess. His intuition, wisdom, patience and discipline all made him ideal for investing. And while it was simply a hobby, I think he could have made a living at it. Most important, how he lived his life is ultimately what made him successful as a father, husband and a man. Here are some lessons I learned from him that I will always treasure, and will pass on to our boys:
1. Marry well. No, it’s not what you think. Do not marry for money, but make sure you are compatible in all areas (money included). I never remember hearing my parents fight over money. They both worked hard to make the most of what little they had while they struggled to raise a family of seven kids on a military salary. The only way it worked is that they were both on the same page.
2. Don’t follow the crowd. Investing, like life, means making choices and tuning out what the hysterical masses are doing so you can think for yourself. Dad never cared what others were doing and we were always encouraged to make our own path.
3. It doesn’t matter where you came from. Dad had humble beginnings. He dropped out of high school and joined the military. Through hard work, he studied laboratory sciences and Cytology, earned his high school equivalency and took college level courses. Eventually, he headed up Coney Island Hospital’s Cytology/Laboratory efforts. He didn’t have a cushy upbringing, he had a lot of mouths to feed, he didn’t have a lot of money, but he knew he was capable of having a better life for his family. And, as little as they had, he always put away as much as he could towards savings/investing.
4. Who cares what you have? He was never boastful, never bragged, and never talked about what he had. He didn’t have to because he was secure. The money he earned and successes he achieved were for his personal satisfaction and not to “one-up” others. Money did not define him.
5. It can wait. We were never the family who got things first like the latest and greatest new gizmo. The most important basics always came first, and that included savings and investing. It is this discipline that allowed my parents to enjoy all their hard work in their later years.
6. Take chances. You can’t grow without taking risk. That means in your personal life, career and in investing. Anything worth having requires that you stretch outside your comfort zone. Not getting in the game costs you more than getting in and making mistakes. But, that doesn’t mean that all caution should get thrown to the side, either. Being impulsive and poor planning can ruin the best of intentions. Dad was good at seeing opportunities, and doing his research so that the chances he took weren’t gambling, but measured risk.
7. One for all and all for one. With a family as large as ours, there was no room for selfishness. If we had, we all had. If we didn’t have, no one had. He did not buy himself fancy toys at our expense. He was not overly extravagant with us or himself. Because of that, I never equated “gifts” with a measure of love.
Father’s Day, like every day, I miss hearing my Dad’s thoughts, learning from his very rich and full life, and laughing with him. So I say quietly, “Thanks Dad for teaching me and loving me well.”
If you are lucky enough to be able to speak to your Dad, let him know how valuable his love and advice are to you.
Happy Father’s Day to all the Dads out there!
Teaching Your Teen Financial Strength
May 13, 2011 by admin · Leave a Comment
Teens crave independence and want to be taken seriously; and, as parents we have to find ways that they can assume more responsibility in a way they can handle. Money just may be the answer.
While we make sure our kids learn reading, writing and arithmetic, there is something noticeably absent from their school education, and that is money smarts. Unfortunately, your teen may be able to go through life with little understanding of geometry but no one goes through life without having to deal with money. How your kids learn to manage it may be one of the greatest indicators of how successful and responsible they will be as adults. It’s never too soon to get started, and while they may groan at first, your teens will start to quickly realize the power that comes from making choices on their own, and they will become more self-confident in the process. Here are some ways you can help your teen work towards financial independence:
- Adult conversations. Teens love to “listen in” and partake in adult conversations. Unfortunately, our adult response can be “This doesn’t concern you,” or “I was talking to your father.” We try and shield our kids from all the responsibilities they will some day face, but all we are doing is delaying their growth and progress. Have open conversations about finances in front of your kids. Take the time to discuss the decisions you are facing, whether it is buying a new car, refinancing your mortgage, or funding a family vacation. Let them see the way you and your husband research and sort through your options to come up with the best fit. Walk them through the math, as you analyze which outcome is best and then show them how you factor in the “quality of life” issues, such as saving time or convenience to make your final decision. Find out what they think and why.
- Basic banking. If your kids don’t have bank accounts of their own, set out with them and research which banks offer the best account for their needs. Show them that the interest rate earned on the account is only one factor to consider; the fees the bank charges, and the convenience (be it location, operating hours, or ATM availability) also will determine where to bank. After you do this research you may even find yourself switching your bank account. Have them open an account and show them how to keep track of checks, deposits and withdrawals in the transaction register. Also show them how to balance their checkbook.
- Savings. If they are earning money, have them commit at least 20% of their income to savings. If they have received gift money, encourage them to save a portion of that as well. This money should go towards a long range goal like college, or buying a car.
- Budget. Have your kids write down any money they earn or receive from you or others as gifts or allowance. Then have them write down everything that they spend money on. Back out at least 20% and make an item called “savings”. Then, based on what is left over, allow them to decide how they will choose to spend this money. At the same time, consider what you have been giving them to spend on items such as clothing, entertainment, and sports/clubs/hobbies. Now would be the time to adjust some of these numbers if you find yourself shocked by what you have been spending. If there is a difference that needs to be made up, your kids should decide if they will use the money in their budget to close the gap, or go without one activity to pay for one that they value more. Show them how delaying gratification now may make them able to save more money to purchase an expensive item they really want instead of buying a bunch of less expensive items they really didn’t need.
- Maintenance. Help them keep their budget on track by having them monitor what they have saved and what they have spent every month. Make sure they keep up with reviewing their bank statements and/or balancing their checkbook.
- Earnings. If they want a bigger budget, they will need to earn more. Guide them in ways they can earn money, such as babysitting, lawn work, tutoring, etc. Don’t forget to have them give their savings account a raise as they start to earn more.
- Charity. It’s always good for kids to realize their blessings and the importance of giving back to those less fortunate or to causes that help others. Help them decide on an amount to donate every month.
Finally, the best lesson you can give them is to put your money where your mouth is: be organized and know where your money is going; pay your bills on time; live within your means; and finally, enjoy your money but be responsible with it. As always, there is no substitution for setting a good example.
Know the Game, Before You Play
March 29, 2011 by admin · Leave a Comment
You would never jump into a game and wager thousands of dollars without first knowing the rules. And yet, every year many parents do just that as they embark on the process of seeking financial aid for college costs. The truth is if more parents understood how the information on the Free Application for Federal Student Aid (FAFSA) is analyzed, they would take steps to place themselves in the most favorable light. Strategic positioning can really pay off if you know how the game is played. Here’s what you need to know:
- How your data will be assessed: The formula FAFSA uses to determine the Expected Family Contribution (EFC) considers the parent’s income, savings and investment assets (excluding retirement accounts and the primary residence), as well as the student’s assets and income. On average, parents are expected to contribute about 5.6% of their assets and between 22% and 47% of their income (with a $20,000-$60,000 allowance based on their age) towards college costs. Students are expected to contribute roughly 20% of their assets and 50% of their income (with a $3,000 allowance) towards the tuition bill. Switching assets into a child’s name would not be a helpful strategy. If your child is employed, consider opening a Roth IRA, as retirement assets are not considered assets.
- What time fame you are working with: The FAFSA form is submitted during the student’s senior year in high school, based on data from the previous tax year (i.e., January 1 of the student’s junior year through December 31 of senior year), also called the Base Year. Strategies that can be employed to reduce income or assets before the assessment period could prove very beneficial (e.g., sell non-retirement assets before the Base Year and use this money to fund IRA or Roth IRA accounts; speak with your employer about receiving your bonus prior to the Base Year, or delay the bonus until the following year). In addition, avoid liquidating any investment assets during the Base Year, as that inflow of cash would be considered as income.
- What counts against you: Non-retirement assets are considered available funds, even though you may be carrying high credit card debt. Prior to January 1 of your child’s junior year, consider taking some of your non-retirement savings or investments and using them toward reducing or eliminating this debt.
- What works in your favor: Roth IRAs, IRAs, employer-sponsored retirement accounts, Coverdell accounts, 529 plans, annuities, or the cash value of life insurance policies are not considered as assets for the purposes of FAFSA. Prior to the Base Year, consider moving non-retirement assets (which FAFSA does count as assets) into one or more of these types of accounts.
Remember, if your child is looking at more elite, private schools, the CSS form will need to be completed as well. This formula assesses parents and students differently, and requires more of a contribution from both the parents and student.
After you submit the FAFSA form, the matter is out of your hands. But, what you do beforehand, when the matter is in your hands, can be critical to the outcome. Being aware of what you are up against may change your approach to the game and, hopefully, with a little planning, may help reduce the tuition bills.
Math that All Kids Will Love
June 9, 2010 by admin · Leave a Comment
Do you want to get your child’s attention and encourage them to save money? A little basic math will show them how they might become millionaires – if they start investing early.
Consider this hypothetical example: A teenager has a part-time job and puts $2,000 of her earnings into a Roth IRA every year starting at age 16 and ending at age 20. Then, she leaves that $8,000 total investment to compound for 47 years at an average rate of 10.7%. Even though no additional money is added to the account, at the end of 47 years the $8,000 investment grows to $1,114,423. Now, even though the average return may seem high, that is not the return the account earns every year but rather the average return earned over the 47 years. Of course results do not indicate past or future results of any investment.
The point of this simple example is to show kids how building wealth is not determined by luck (like all those losing lottery tickets out there), but by making regular, consistent investments, and by starting early. In fact, the power of time is the greatest advantage of our youth because it can help assets compound. Show your kids this example and then, as they receive gift money or begin earning their own money, encourage them to put away some of it. Getting them started early means they will take advantage of time to secure their financial future.
Allowance: Your Kids’ First Money Lesson
One of the most important things you can teach your kids is how to handle money because this skill — and not earning power — will determine their financial success. Allowance is one way to create many teachable moments.
There are many schools of thought on how to approach allowance: give $1 for every year of age or pay a “competitive” wage; use it as payment for chores, or keep it separate from chores. Well here’s a way to make your life easier, limit whining, and give your kids the power and responsibility to make choices. First, you need to track all the money that you spend on your kids. Every cent per month needs to be recorded: candy at the checkout, snacks, games, toys, books, sports, clubs, entertainment, etc. Then, decide which items they will pay for, going forward. For a five-year old, it can be candy, books, or snacks, for example; and for a 15-year old it can be clothing, entertainment and/or hobbies. That figure will determine what you give your child every week, but with the clear understanding that they will now pay for these items out of their allowance. What better way for them to weigh their choices, to understand the cost of goods, and to learn consequences? There can be no bail-outs (which is why paying weekly is a good idea) and they must abide by your rules when selecting items (e.g., “You can buy your own clothes, but if you buy something that I would not let you out of the house wearing, you will have wasted your allowance.”). In this way, you are truly giving them training in money/budget management.
Should you tie this compensation into chores? You can, but then you run the risk of your kids always asking you to “pay” them extra when they pitch in. Let your kids know that, as a family, you all work together to make the household run, and that they have set responsibilities to the group. Again, be clear about your expectations for chores. You can have consequences if they do not do their chores. They can lose privileges, such as going out with friends, or watching TV. You would know what would be the right “button” to push with your child, should you need to.
Give them the chance to make mistakes, to think things through, and show them that they are valuable contributors to the household. Teach them these lessons, and you will have raised confident, wise, responsible, and thoughtful adults who can handle money. All that from a few bucks a week – not bad.
