Author Topic: How do you press your kids to learn money habits? (based on July 20th blog post)  (Read 1517 times)

caracarn

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The article covered and area I'm not going to get into, and therefore I am adding things here as I feel it is better than the comments under the article.

I wanted to have more of a conversation about the first section of his article, where on the spectrum is the best fit for a kid to avoid them being a complainypants adult.

So first, the choices we have made:
  • I will not fully fund my kids college education
  • I buy my kids, food, clothes, shelter and a few things for fun.  Everything else is on them with their allowance.
  • My kids cover their auto insurance and pay for gas for the car.

As you might imagine, our kids have friends who have their parents cover all these things, and they also have high school and college counselors that encourage them to just have their parents co-sign loans, after all that's the American way!  So we have a few difficult conversations a year where we need to explain/remind our kids of how we do things, and then explain why we are not like all the other parents.

So I'm curious to hear what others have to say about these types of topics.  Happy to elaborate on what we do or our thinking on any area.

DadJokes

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My kiddo is 7.5 months old, so I have a little bit to nail down a plan. I do want some of the following to be a part of it though:

-Instead of buying things for him, I want to provide him with a monthly allowance for all of his expenses. He would be responsible for budgeting for haircuts, clothes, school lunches, toys, etc.
-Buy the time he is a teenager, we should be FI, I want him in charge of portions of the family budget. It would start with us having strict oversight in a category or two, but I would like him to be comfortable operating the entire household budget.
-From an early age, I want him to adopt the idea of saving 50% of his income.
-Start working as early in life as possible. I don't have my own business, but that would allow him to work much younger and learn these lessons quicker.
-I want him to get a sense of perspective by going on trips to less privileged parts of the world.
-He'll have to research any career options he wants to pursue and provide me with an estimated ROI and interviews with people in those careers.

caracarn

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Certainly some interesting ideas, though some will be difficult to make happen (the idea of saving 50% of his income is one). 

In the end, my biggest challenges have been instilling solid money habits into my kids, despite best efforts.  I'm assuming your kiddo is your first, so you've not yet gotten to the point in your life where you are the dumbest person they know (happens as early as 7-8 but certainly by the time they are teens and then they realize how smart you are by about 25). 

So a lot of my aspects around things like the first point, were using systems that saved my sanity, understanding that I cannot control another person.  To learn money management we provide a $5/week allowance (increases to $10 when they turn 12) which runs from when they start wanting/asking for things (usually around 3-4) and ceases at 18.  It is based on a book First National Bank of Dad, that I read back in the 90s and have used with all my kids.  Many friends or acquaintances have tried it and loved it as well.   At first they get money but once they master basic interest, you move them to stocks, usually around 8-10 years of age for our kids (somewhat, it is still money, but tracked in stocks).  We give them 5% interest per month (60% APR).  This allows them to learn compounding by really seeing it.  Basically once you get a little nuts on the interest (at one point I was paying my son $50+/month in interest on his $1,000+ balance) you move them to stocks, which you calculate at 1/100th of the actual value.  The name of the process is because their "account" is in some software (we do ours in YNAB as a category for each kid) that you manage as their bank.  You pay them interest, provide their balance and maintain their transactions. We did not do anything like make them pay for normal things as you propose (haircuts, basic clothes, food), but yes if they wanted a toy or candy or extra clothes that we did not feel they needed, their only choice was their bank account.  No money in the bank account, no purchase.  Beyond some basic rules (they cannot buy drugs or weapons) you have no say in what they spend this money on.  If they want to buy something the only questions is "Do you have enough in your bank account?"  If they do, just like when you want something, they can buy it.  When it breaks or they lose it, they learn not to buy shoddy products or learn responsibility.   For the first few years you are likely not paying any interest because they spend it as fast as they get it.  But it is amazing how fast they learn to evaluate product quality or start making decision.  By 5 or 6 they were pretty good.  By 7-8 they put a lot of adults to shame (that was how my son got $1,000+ because he never felt anything was worth buying).  Once they convert to stocks as their account value then they are not earning interest.  I will be honest, none of my kids did much once they stock thing happened, they just collected their allowance and spent it or whatever, so that did not work as well, but it still limited their whining.  So I'd recommend something like that for the allowance.  It stopped a lot of grumbling.

Giving them the option to help (running some of your budget) is great, but some (most?) kids have zero interest.  Making money management punitive is the best way I know to make sure once they are free of you that they will suck at money.  This really becomes a "you can lead a horse to water but you can't make them drink".  It is very similar to someone who has a spouse who has no interest in FI.  It's not a fun process to try to force them and it usually ends in utter failure.  Therefore I'm unsure how you can really make anything other than your first point happen.  Can they be aspirational goals?  Yes. 

I cannot "make" my kids work, because slavery was abolished a while back.  I can make it hard if they do not, but not paying for anything but the basics, but I still have kids who choose not to work, even in college and even with the prospect very clearly set before them that they have few options if they cannot afford their tuition but to drop out.  I have once child who is on the brink of that next school year, but she refuses to work as it is "too hard" to do while attending school.  Just because you are Mustachian will not make them Mustachian, anymore than just because you like baseball they will like baseball.  The odds may be higher that they will, but in the end, they have their own wills, and I will tell you, the exercise them in the most unexpected ways.  Life will teach them.  My oldest is not in college because she used up all the savings we had and now she works in fast food and has no intent of going to college.  I tried very hard to change that path.  She moved out at 18 and has never looked back.  She's making adult decisions and is supporting herself, which is what we are trying to teach our kids to do.  Could she do other things and could she have made different choices?  Yup.  But she seems happy.  She had a car that was failing and she clearly does not want to go to college, so last month we gave her a choice.  She could dip into the college savings we are adding for her and instead use it for a car, but then it's not there for college.  She chose to do that.  It's a big example of First National Bank of Dad.  It is money that was earmarked for her, and we were willing to give her another option for it.  Not one we'd really take for ourselves but we are not living her life.

DadJokes

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I certainly thought my dad was an idiot when I was teenager. However, as a 31 year-old, that belief hasn't changed too much, as I watch him make mistake after mistake in his life. I also knew families where the kids didn't think of their parents as idiots. Hopefully, I can emulate some of the things I saw in those families and not what I saw in my own.

As for my plans to raise my child, so much depends on his personality. I simply have to hope that my child is as analytical as I was as a child. However, since nothing goes according to plan as a parent, he will probably be just like his mom and not care in the slightest about money.

I don't have a plan to deal with that. I just have to hope that I can plant the foundations in his head early enough that some semblance of them remain when he moves out. Maybe if I am retired by the time he is a teenager, he'll take my teachings a bit more seriously.

waltworks

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We have tried and tried with my (7,5) kids... but they just don't give a crap about money.

As in, if you give them money, they just leave it lying around or throw it at each other or see if they can set it on fire with a magnifying glass.

Neither of them generally wants to buy anything, and if they do want something and I tell them they should pay for it with their money, they tend to lose interest. They are unmaterialistic to an unreasonable fault, to the point that I'd prefer they want some stupid toy just so they can at least start to grasp the basic concept of money.

I guess my point is, to paraphrase Mike Tyson: everybody has a plan, until they catch their kid burning a $5 bill/get punched in the face. I think the bank of dad general idea is a good one, but it might or might not work. Putting a kid in charge of the family budget or getting them to save 50% of their money? I'd say the odds aren't great. But you never know. If there's one thing I've learned as a parent, it's that your kids are their own people and you have less power to direct their lives than you think.

-W


MayDay

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We have done very similar to caracarn.  Both kids get 5$/week starting around age 3 (whenever they started asking us to buy toys and junk food).

 We've bungled it a little- they never carry cash. Should I loan it? What tends to happen is I loan it if I think it is a reasonable purchase, and I say no if it is junk.

We pay 1% interest a month. We just track their money in Google sheets. We actually add their allowance electronically because we never have cash. But then they sometimes want cash to spend and we are resistant to pulling money out of savings. Again, probably an error on our part.

DS recently decided he was going to take out 300$ for a Nintendo switch. What we typically do is either require them to wait awhile and see if they really want it, or require them to earn some money to match what they pull out. In this case DS is asking for money for his birthday, earning some doing extra chores, and pulling some from savings.

Whenever they want to pull from savings, we remind th of the things they are going to need to buy: DS wants to be able to replace his laptop in a couple years. That is pretty concrete for him, he wants a fancier one so he needs ~1k. It helps to have a specific goal.

At the end of the day, I think all we can do is make sure their are consequences for blowing money (ie not provide more to bail them out) and provide them with information/education. I'm hoping for a 50% success rate :)

caracarn

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We have done very similar to caracarn.  Both kids get 5$/week starting around age 3 (whenever they started asking us to buy toys and junk food).

 We've bungled it a little- they never carry cash. Should I loan it? What tends to happen is I loan it if I think it is a reasonable purchase, and I say no if it is junk.

We pay 1% interest a month. We just track their money in Google sheets. We actually add their allowance electronically because we never have cash. But then they sometimes want cash to spend and we are resistant to pulling money out of savings. Again, probably an error on our part.

DS recently decided he was going to take out 300$ for a Nintendo switch. What we typically do is either require them to wait awhile and see if they really want it, or require them to earn some money to match what they pull out. In this case DS is asking for money for his birthday, earning some doing extra chores, and pulling some from savings.

Whenever they want to pull from savings, we remind th of the things they are going to need to buy: DS wants to be able to replace his laptop in a couple years. That is pretty concrete for him, he wants a fancier one so he needs ~1k. It helps to have a specific goal.

At the end of the day, I think all we can do is make sure their are consequences for blowing money (ie not provide more to bail them out) and provide them with information/education. I'm hoping for a 50% success rate :)
So part of the guidance and teaching them about money is that it has to act like real money/income does, meaning that when you want to buy something, you buy it.  Your method places barriers to that into the mix and therefore would not match how we do it/the book explains it.  The logic is really that simple though.  Your kids will never learn to make good choices if you keep interjecting yourself into them.

So to be crystal clear, if our kids wanted the Switch.  First, "do you have enough in your bank account?"  If answer is yes, we buy it wherever they are looking to buy it.  so we do not give them cash either, usually we are ordering off Amazon or buying in the store.  We apply their purchase to the category in YNAB that is that child's "Bank of Dad" and voila, all is done. 

You do not need to wait or earn extra money when you buy things, so why is this introduced into a system trying to learn how to navigate money?  I get the psychology that we feel we need to advise and parent them, but the results when you do not do that with this method are nothing short of amazing.  Yes, you will grit your teeth and do whatever you need to not go nuts for a while, but the beauty of this is it is self regulating.  When they run out of money the dumb choices stop till their balance builds again.  I really encourage you to take the training wheels off and let them ride by themselves.  That money is theirs.  You just provide a means to spend it by charging things on your credit card and then adjusting their account balance. Having to do this when out and about is why we use YNAB and stopped doing any kind of spreadsheet.  It is real time.  It lets my wife and I see the balance immediately so no chance to double spend (unless the kid is Jack Jack and replicated themselves and is with both of you at once).  On vacations we can easily make sure no one blows more than they have even in the insanity of a theme park or something.  We LOVE it! 

As the kids are now older, I use Capital One 360 MONEY accounts which they can have once they turn 13 (might be 12).  It gives them a debit card.  So for some of them we just transfer their balance to their account at the start of the month and we are truly hands off.  They can buy things online themselves and not even have to ask us. 

With regards to the reminders, if someone was saving that way (usually they do not tell us they just do it), if they have signed up for a repeating service (for example some of them have a World of Warcraft subscription), that is on our card, we would hold that back from their balance.  We got burned a couple times when they had to overdraw and then it took two months to get back to a $0 balance, so we learned from those experiences, but no loans are allowed.  You either have the money or you do not.  We explain that as adults they will have access to credit cards, but we also explain that that habit can get you into trouble fast, and we are not funding their learning on that.  Not had a problem with those limits.  Also on vacations we allow $50/kid for them to spend.  Anything they want beyond that is from their allowance.  We buy them meals, we pay for tickets, etc.  This is basically souvenir money.  This lets them get one really thing or a bunch of less nice things, which we feel is appropriate.  If they want to go nuts, then they had better have saved.  So to end this paragraph on saving, when they were young we did remind them "we are going on vacation to Disney in three months, so you sure you want to spend everything in your bank account now?" 

Lastly, I think the consequences of blowing money without the training wheels are provided by the system.  There is no money when that next things comes and they realize the opportunity cost of buying that other thing.  I just think you are making it harder for yourselves than you need to.  Let the system work for you.

caracarn

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We have tried and tried with my (7,5) kids... but they just don't give a crap about money.

As in, if you give them money, they just leave it lying around or throw it at each other or see if they can set it on fire with a magnifying glass.

Neither of them generally wants to buy anything, and if they do want something and I tell them they should pay for it with their money, they tend to lose interest. They are unmaterialistic to an unreasonable fault, to the point that I'd prefer they want some stupid toy just so they can at least start to grasp the basic concept of money.

I guess my point is, to paraphrase Mike Tyson: everybody has a plan, until they catch their kid burning a $5 bill/get punched in the face. I think the bank of dad general idea is a good one, but it might or might not work. Putting a kid in charge of the family budget or getting them to save 50% of their money? I'd say the odds aren't great. But you never know. If there's one thing I've learned as a parent, it's that your kids are their own people and you have less power to direct their lives than you think.

-W
Wow.  Mine were never that interesting!  I did begin to question if they'd ever understand, but I saw inklings at times, and for those who are now in their 20s and suck at money, they understand how it works, they just choose to live as they do.  Obviously that is not in our control.   What is is that we do not bail them out, we just help them figure out their options, if we are even asked.  In many cases they just do things on their own, and that was always the goal to begin with, i.e. not having a 35 year old living in my basement. 

Two of our six are out on their own, both having chosen to do so when they hit 18.  Third is doing the regular college thing and the others are still in high school, so we have a few more to fledge to see how this all works out.  We have a pretty good idea on most of them.   They sadly have embraced most of what their friends do with money, which is spend like every American, but if I learned anything as a parent is that their friends have a lot more input they listen to than we do as parents.  I'm told by those with older kids that this changes once they realize we were not insane, but right now we are living in the bubble of "my parent is speaking, I cannot hear them and I'll smile condescendingly to make them think I'm really caring what they tell me". 

Just Joe

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We have two kids and they both were not interested in money as young kids. When I was a teen I was working all sorts of odd jobs to earn a little cash to spend on my car, my hobbies or simply have the means to go do something. Our kids are different. When they were young they liked to spend it but did so infrequently that there was always enough in their piggy bags to fund that rare purchase.

Youngest is still in that mode. Content to blow twenty bucks once a month or not.

Eldest is nearly an adult. Has been very sloppy with spending since high school. Aspires to spend money but the sloppy spending has always depleted their cash. Sloppy spending: convenience food, driving around too much, hanging out too much, movies - whatever.

First car was free from us to Eldest. It lasted longer than we all expected. No lessons learned from a free car though.

Second car had to be purchased by Eldest. Eldest picked out a car and was very excited about it. Funded via a loan from Bank of Mom and Dad. No interest loan, Eldest pays for car, tags and taxes, repairs, insurance and fuel. Sounds like alot but it was a cheap car, cheap insurance, cheap tags and a gas sipper. Details written out in a notebook. Clear terms. No payment, no drive. The car is our's until it is paid off. No changes to the car b/c it remains mine until it is paid off so no big stereo, no creative paint jobs, nothing.Between you and me that's about keeping the payments on schedule and being able to sell the car if necessary. I'd hate to repo it from my own kid. I doubt that will ever be a problem.

First payment on the car came along just as Eldest was starting a new job. When Eldest realized what a hit that paycheck took from the payment I was certain that Eldest would try to renegotiate the car loan terms on the spot b/c of a date that night and plans over the weekend. First payment was already two weeks late due to the job change. We wanted to help reduce the cost temporarily but know that the lesson will serve them better in the long term. So, Eldest made the payment and stretched a cash pittance until the next paycheck.

Now the car will need some maintenance before winter. Three hundred dollars or so. Start saving up kid! The lessons are slowly (SO SO slowly) sinking in. There is another lesson shaping up about time management too. Can't stay up late with friends watching movies and get up early-early for a job on a regular basis. Sleep is a necessary thing.

DW and I have made big efforts so our kids know what it costs to live like we do. More details taught as they've gotten older. Income, utilities, mortgage, internet fees, grocery budget. They know the numbers but I don't think either of them UNDERSTAND what those numbers mean until they start making their own money and paying bills. I hope your kids are different.

I was starved for all that information at that age b/c to my parents all that money stuff was a Top Secret topic that to this day has never been detailed. To me this makes a young person ripe for expensive mistakes and a target for people who prey on people's ignorance like credit cards and any company that sneaks a bunch of fees into their business model.

caracarn

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Thanks for sharing Just Joe.  Really interesting.

Time will tell.  I'm in another spot with one of my college aids kids where she is to be saving and still pretty certain she is not.  The hard lesson will likely be she has to drop out of college for lack of money, but I've only told her dozens of times.  My wife and I discussed giving her a "bill" for $425/month that she needs to pay us for college which will get her the savings she needs.  I will likely be talking to her about that when she gets back from mom's on Friday.

Just Joe

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Keep us updated on how that goes.

Michael in ABQ

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Our kids never received an allowance but several years ago I started paying them 5% interest, compounded weekly, on their money. Their income consists of doing some extra jobs around the house and birthday money (typically $10-25). I pay one cent per weed picked and they'll often make a few dollars. Usually the older kids have anywhere from $5 to $50 so I'm only paying out a few dollars a week in interest. It's worked reasonably well so far. Our second oldest is a natural saver and is reluctant to buy a $6 LEGO when he has $50. Our oldest will have $20 and spend $15 of it on a toy.

We discuss money pretty openly. Our oldest is 11 so in a few more years we'll start talking about a part-time job after school or in the summer.

justinhurt

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I am not from a wealthy family but my parents always tried to do their best to make me happy. Since I was 16 they told me I needed to make money by myself. I understood it and began to teach maths to my classmates. My parents were happy I was making money, and of course, they helped me as they saw I tried to be independent. But my friend, who was always provided by his family, he wasn't ready to work. And at the moment, he's 27 years old and he still doesn't want to start working as an adult. He just spends all his parents' money, travels around the world, makes fun, etc. I'm trying to talk to him and say that he needs to make money by himself. He's not a child anymore. But he doesn't understand it and I think, he doesn't even try to do it.
So, I guess learning money habits should have a place at a young age when your child is STILL A CHILD. And he's ready to listen to you and follow your advice.

Linea_Norway

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When I was a teen ager, my mother often mentioned that other kids delivered the new papers every day, at 6 am. Getting out of bed so early to earn a little pocket money was never so attractive to me. But I did choose to have jobs during the summer vacations. As soon as I was a student, I have always worked evening jobs. My parents provided basis money that covers the rent of my student room. I got some cash form the government and I spent the rest myself.

I first became a Mustachian when we decided to move to Norway, which is one of the most expensive countries in the world (Not currently, because of strong $/€ and week crown course).

I heard that my co-worker has a list of tasks at home that her children can do for money. So they learn to work for their money.
« Last Edit: September 05, 2019, 02:26:23 AM by Linea_Norway »