Enough money but not too much

Give your kids enough money to do something but not enough to do nothing.

I have always thought the quote, “give your kids enough money to do something but not enough to do nothing” was a profound statement and when I thought through it in several ways it made sense to me.

kids-money

Challenges with giving kids too much money

  • We have all heard of the son or daughter of a rich family that went completely off the deep end when they reached 18 years old.   Fast money, fast cars, fast thrills and they ended up financially broke, emotionally broke or worse in jail or dead.  The sad result of parents giving a kid too much money.
  • Or the 20 something year old kid that has burned through all of their favors from parents, relatives and friends, because they continued to need to be bailed out of self inflicted troubles.   A family member or friend sweeps in and rescues them and they promise to get their act together only to fail again all to quickly.
  • The other case is the kid that has too much money or just enough support to  do absolutely nothing.  No one wants, the 26 year old that lives in his parents basement and plays Xbox all day.  Eats all the food in the house and is perpetually messing up the house.

What is best for our kids

We all want what is best for our kids.  We want our kids to have a better life than us.  To be more successful and not make the same mistakes that we did.   I tell my kids and other young people that I don’t claim to be wise, however, I have 50 years of experience, at the ages of 16 to around 19, they role their eyes and ignore the advice, most don’t come around to the advice until around 20 or sometimes later.   My goal in my advice is a hope that they could skip some of the life lessons that I had to  learn the hard way or I saw other people’s kids or adults learning these lessons the hard way.  The balancing act clearly is how to let kids learn small lessons without continuing to be the helicopter parents and swooping into rescue the every time they fail.

When they are babies

When your kids are babies this is an easy time in regards to teaching them about money.   The fortunate things is at this point they don’t know what money is.  All of their needs are taken care of by you, their parents.   Food, clothing, shelter, and new toys hopefully are always plentiful and magically appear through the hard work of their parents and grandparents.   When they are babies there are several fundamental things to put in place for them immediately.

  • Start a college savings account for them, one account for each kid.  Start with automatic contribution of $50 a month or what ever you can afford, setup an auto withdrawal from checking.   Start a brokerage account at Schwab or Fidelity for them.   Pick a good mutual fund or a few broad based exchange traded funds, or ETFs.  Let it ride until they are older and increase the monthly donation when ever you can.
  • When your kids get gift money for birthdays, baptism, first communion or other events, squirrel it away in their college fund.  What ever you do, don’t spend it on toys or clothes.   You will be thankful for the money, 18 years later when junior heads off to college, the average 4 year college education can run from $80,000 to well over $100,000 in today’s dollars, just wait 15 to 18 years from now.   College tuition costs continue to rise at a rate that is generally much hire that the rate of inflation.

Young kids and money

When kids start to talk and communicate you get your first real opportunity to start to teach them about money.    You might think how do we teach a  3 year old or a 5 year old about money.   One of the fundamental things that we want  to  teach them  at  this time is what money is  and where does it come from.   In today’s  credit card world  and the age of Amazon it might  be difficult  for little  Amber to understand  that when the Amazon box arrives at the door, someone had to earn the money, put the money in the  bank,  and payoff the credit card bill, with funds from the bank account.  Without  this all  being done a quick stop would be  put to all the magical boxes with  Amazon swoosh on them that appear  at your door step on a frequent basis.  Start with the  following tips for  teaching young kids about money.

  • The fist thing you can do is buy them a piggy  bank.   Sounds  pretty silly and old school doesn’t it.   You might  have had one as a kid and the power of the piggy bank was, it provided a place to store your money.  It was the first time that you learned how to save.   It was incredibly cool to open it up and count all of the money.   The coolest part was when you would shove in some dollar bills or even a five, when you opened up the piggy bank a year later, what a thrill.  You remember these memories, if you don’t or didn’t have them, create them for your kids.    Think about giving your kid 4 quarters and telling them that they should put them in the piggy bank and save if for the special toy that they are wanting.   If there grandparents give them $10 where do the store it.  They don’t have a wallet or a purse yet.  Put it in the piggy bank.
  • Did you get an allowance as a kids?   I did not however there are some powerful aspects to an allowance especially if your kids have to do a few minimum things in order to get there allowance.   The first is it teaches them about work ethic.   The second is that when they want something they recognize that they have to work and save for it and they have to delay there gratification.   All big words and topics that they might not appreciate or understand until they are 22.
  • As early as you can start a savings account for them.   When they slide over $15 in quarter to the teller it will be a strange yet growing experience for them to recognize that they’re depositing there money and they can get it back when they need it.

Teenagers:  Old enough to drive?  Your old enough to work.

I got my first job in 7th grade.   At first I cut lawns for neighbors and then I got a paper route.  The paper route was 7 days a week, 365 days a year.   The paper route was a good job, the most challenging part was collections.   It was difficult to get people to pay for their paper.   I think at the time the paper was about $1.75 per week.

When my wife and I  started raising our kids, I noticed how little the neighborhood kids worked I was frankly a little shocked.

  • Bottom line for me, when your kids are old enough to drive they need to work.    Even if it is just a part time job in the summer they need to work as early as possible.
  • Increase the level of responsibility gradually is my philosophy.   There  is no reason a 16 year old can’t work 20 hours a week in the summer time.  If you find that that school is too easy for them, have them work 10 or 20 hours per week after school.   Especially if they are not playing sports.   Working will give them a sense of purpose and accomplishment as well as keeping them out of trouble after school.

College: Your kids, money and the college years.

Prior to your kids arriving at their freshman year of college they should have a full time job during the summer.    Hopefully they are saving the money for college expenses.   When I was in college, I had budgeted $1000 in spending money that was above and beyond the expenses such as books, tuition, and room and board.   This worked out to $30 a week for eating out, going to the movies, parties etc.    The great part was that a lot of weeks I was so busy that I didn’t even spend the $30 and I ended up with enough money left over that I was able to go on and inexpensive Florida spring break with the leftover funds.    The bottom line is that have a budget of $1000 of money that I earned and having a planned expenditure budget of $30 per week was a great way to manage my money.    In summary college kids should have the following:

  • Skin in the game:   If your kids have the luxury of not having to pay for any of their college expense and can get through college without student loans, that is awesome.   They should however, always have some skin in the game.   Have them fund their own spending money or fun money from their summer jobs.
  • Make sure your college kids are responsible for paying the bills.   Have them write the checks for tuition, rent, books, etc.   Even if you have to transfer them the money from their college accounts, it is important that they are paying the bills.   If gets them use to what they will be doing for the rest of their lives, paying bills!

When kids become Legal and financial adults

Young adults become legal adults at age 18.   They can enter into contracts, vote in elections, join the military, etc.   Society considers them legal adults.    However, in reality they are legal adults yet in most case they are financial minors.   If you as the parents are still paying for car insurance, health care, clothing, food, rent, utilities, cell phone bills, etc., then they are financial minors.

Most parents will praise the day when, college is done or they get a full time job, move out, and start paying all their bills.    There are lots of ways to wean your kids off your support and get them use to paying for some of life’s expenses.

  • During the college years when they are hopefully working full time during the summer breaks, have them cover some of the work expenses.   There is no reason they can’t pay for their gas back in forth to work and to social events.   Have them pickup the cost of an oil change here and there along the way as well.
  • As soon as they have their own money start having them either contribute to or pay for the entire amount for their cell phone bills.   Let’s face it, a cell phone is an expected luxury that most 10 year olds want.  As we all know the bill can range from as low as $30 per month to as high as $80 per month depending on their data usage.    Have them pitch in $20 or $30 a month or more.   If they drop the phone and break something, have them pickup the cost of the repair.   If they have to shell out a $100 for a new iPhone screen from their own funds they are sure to be more careful or invest in a rugged case to protect their $500 phone.   People tend to respect and take care of things that they pay for vs. things that are giving to them.
  • One of the best things to encourage your young adult is to move out.  Nothing helps you grow up faster than dealing with landlords, paying utility bills, buying your owning food, cooking for youself, paying insurance, etc.
  • I would also recommend that your young adults start a ROTH IRA as soon as possible.

 

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