Don’t buy stuff you cannot afford

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Part of teaching our kids financial intelligence is letting them make mistakes and live with the consequences of their decisions. We have to do this as adults (unless you’re a politician, then you can blame someone else), so our kids should learn it as well and better to learn it when the stakes are much lower and they have a safety net (i.e. you).

For a period of time my wife and I got into the bad habit of allowing our kids to purchase something and use or play with it while paying us back with their future allowance money. We rationalized our decision because many times the item was on sale or it was the last one remaining. But we realized we were teaching them how to buy on time. This sets the dangerous precedent of buying stuff you cannot afford. See the Saturday Night Live clip here: http://www.nbc.com/saturday-night-live/video/dont-buy-stuff/n12020/

Buying on time is fine for your home mortgage or a car but you don’t want to encourage the use of credit at an early age. Let them spend their real cash and watch the dollars change from their hands to the store’s register – the finality of that drawer slamming shut has a visceral impact. We have since ceased this practice. We still allow them to purchase things before they have the money, but it goes into mom and dad layaway plan. They are not allowed to have the item until they’ve paid the item off. We find this works much better.

Another frequent topic of debate in your children’s finances is whether you should require them to donate to charity.

No.

Charity is not charity if the gift is not the givers to give says David Owen author of The First National Bank of Dad: A Foolproof Method for Teaching Your Kids the Value of Money (Owen 64).

Each man should give what he has decided in his heart to give, not reluctantly or under compulsion, for God loves a cheerful giver,” says God, author of 2 Corinthians 9:7.

Not only does God love a cheerful giver but when you are forced to give that’s not called charity, that’s called a shakedown (the government calls them taxes). So how do we teach charity? Well, here we go again with that annoying living by example nonsense. If your children see you cheerfully giving away some of your time, talent or treasure they will often get the idea by themselves with little to no nudging (Owen 64-65).

You may be amazed just how charitable your kids can be and in fact you may even have to keep them a little bit in check or else they will give all of their money away. While giving away everything might seem like a very charitable thing to do you may want to teach them the power of financial independence, which means the ability to earn more money so that they can give more of it away, if that is their desire.

I want to revisit the concept of chores. Many parents, myself included, got just a little bit excited when we started having kids as I realized that someday I could delegate things like lawnmowing and snow shoveling off to the younglings. Doing most chores around the house is not a job; it’s just a family obligation that everyone pitches in to some extent (Owen 67), no questions, no whining, no hits no runs no errors. But do you pay them or not pay them – that is the question:

  • If the chore is something you’d pay some entrepreneurial stranger $20 bucks to do then you should pay your kids if they do it, above their normal allowance (Owen 69). There goes my plan to get free yard work done. Chores are also relative. If you grow up on a farm then much of the farm’s work is part of your chores. If you grew up in the burbs and part of your chores is doing things like putting away the dishes, then quit whining, you could have been born on a farm and have to do real work. But even on a farm there are chores, then there’s what mom and dad are paying others to do.
  • Owen disagrees with paying for good grades as do I (Owen 68). First, there is the possibility your child will learn to cheat, very effectively, in order to attain the grades necessary to get the payout. Second, they may just decide they don’t need the money that badly and accept lower grades. I remember my parents told me that if I ever came home with straight A’s they would buy me a much desired trampoline. It was the least riskiest bet of the 20th century as I never even came close.
  • Kids do not see the value of doing many household chores because often it is an investment in a property that does not belong to them. Grownups will do all sorts of boring chores like paying the bills, raking the leaves and scraping old paint because they see the connection between their efforts, their own well-being and their property value (Owen 71). If you want to get your kids to do things like clean up their room start small. Work on the closet first or maybe an area of the floor. When a kid thinks that they have to clean-up their entire room it sounds like a monumental task. Show them the benefit of incremental improvement and how when you put action in one direction you build momentum in that direction.

Another way to get kids to do almost anything is to speak to their own self-interest (so, pretty much the same way you would get an adult to do something). Tie the chore or task into something that benefits them and it gets done.

Research has shown that people will do more to avoid pain than to gain pleasure so here is another idea: try giving your kids an extra buck or two at the beginning of the week, above their allowance. If they keep their room clean and do all the other chores without being reminded, then they get to keep the money. Otherwise, it goes back to the house. Keep in mind, I have not experimented yet with this concept but it sounds good. Give it a try let me know how it works out. Sort of like pay for performance for star athletes.

At this point you may be wondering where mom and dad are going to get all this money to pay to their kids. Again, its all relative. If you’re living on $30,000 per year and have kids, then don’t start paying your kids huge allowances. It’s an opportunity to teach your kids about things like salary, taxes, healthcare and that mommy and daddy have to live within their budget or else we will all be spending more than we can afford.

Owen, David. The First National Bank of Dad: A Foolproof Method for Teaching Your Kids the Value of Money. New York: Simon & Schuster, 2003. Print.

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