Managing Money: Getting Enough to Manage
December 31, 2008
I have a friend by the name of Ward. Ward is a more experienced parent than I am. His kids used to babysit my kids. Now, his son is in the workforce, after graduating from college, and his daughter is in college.
I have learned a lot over the years about teaching my kids about money from Ward. I’ve viewed Ward as a mentor in the process and have gotten lots of good ideas from him for teaching money to my own children.
Ward recently talked to me about teaching his kids about money. I actually told him how much his lessons and ideas meant to me through the years. I told Ward that he is one of the reasons I am writing this blog.
So Ward took another tack in our ongoing conversation about kids and money. He confessed to me that he felt he didn’t teach his kids enough about managing money because his children didn’t get enough money to manage.
It is interesting to hear Ward say this, because his son is in the workforce and Ward is seeing situations in which his son maybe isn’t as adept and nimble in managing money as he would like him to be.
Ward asked the question out loud in from of me: What is the right amount of money that a child should manage in order to learn how to manage it well? $20? $80? $150? Ward and his wife differ – and that is where the conumdrum came in. Ward always felt the figures should be higher. His wife always felt, and still feels, that the figures should be lower.
I can understand both sides. I can understand Ward’s perspective. And I can understand his wife’s point of view – she may feel that it is inappropriate to just hand a lot of money over to a child. But I bet there are lots of solutions to that issue.
Now these folks, Ward and his wife, have the means to provide money to their kids. Don’t get me wrong – I know that we don’t all have that. By giving their children smaller amounts of money, Ward and his wife possibly felt they were teaching their kids frugality and modest living, despite their affluent means, which was noble. But they look back now and say that the amount of money their children managed should have been larger so that their kids would have had more practice in actually MANAGING that money.
Fascinating.
Justine
Your New Credit Card – Read the Fine Print
December 30, 2008
So, Parent. You and your teen have obtained a new credit card for your kid. Congratulations. You are off on a fun, interesting path of teaching your child how to use a credit card productively and safely for the rest of her life.
But wait.
The first thing you do when that credit card comes in the mail is you sit your teen down and read all of the enclosed fine print together.
Yes, you make your teen read it. And you have to read it, too, so that you understand what you both are getting into and so that you can make sure that your teen understands the fine print, as well.
Reading the fine print is an important task in any personal finance activity. Reading the fine print is an important skill to teach your child so that he has that skill for the rest of his life.
Yes, eventually, you may read so much fine print that you get it pretty easily. But when you first start reading fine print, IT IS REALLY HARD! You can talk to your teen about this progression of knowledge and how reading the fine print will get easier over time.
But you gotta read the fine print. Remember, many say that we are in our current economic conundrum because of the mortgage crisis which in some ways resulted from borrowers not reading the fine print.
Reading fine print enhances and develops brain cells, I am certain. It might hurt a little, but it is a great skill to teach your kid.
Justine
An interesting example of how a parent taught her kid about money
December 29, 2008
A while back, on October 17th, I shared a story from National Public Radio with you. The link to the NPR story is at http://www.npr.org/templates/story/story.php?storyId=95793263 or you can find it at right via the story Tough Economic Times Hit Teens, Too.
I went back to look at the story and saw a few comments there. I loved this comment, which you can find at the cited link:
“OK. I have a nearly 21 year old that pays her own car note, and buys cell service for her dad and I. Yes living at home; but a full time college student and works 20 – 30 hours a week and is an athlete. Now more teachers than you can count yelled at me furiously… I payed her 20 bucks a report card A starting in the 3rd grade and never questioned how she spent it. It did not take long for her to learn not to buy junk; save; budget… A B was worth 10 a C zip a D (happened once) was a $50 fine payable directly to me. Look we ask them to do so much, its hard to teach “work ethic”.. it probably wont work for everyone; but it worked for us. Today my husband has had 3 months of work in the last 18.. things are getting thin, but our daughter understands that it make take all three of us to pay the mortgage etc… its a family responsibility! **beaming** (not that she doesn’t have typical young adult growing pains – )”
I love this comment. This mom worked hard to teach her daughter about money. She used some creative methods and didn’t think too hard about what others might think about her methods. Both she and her daughter have reaped tremendous rewards from those lessons.
You and I could go on and on about whether parents should pay for grades. And from what I hear, most people think that paying for grades is a horrible thing. But who cares? This mom was teaching valuable lessons about money. She was teaching valuable lessons about money because she was facilitating ways for her daughter to access money so that her daughter could learn how to manage money.
It is all about sharing ideas. I think that is cool.
Justine
Slowing Down
December 25, 2008
Our blog will resume postings on Monday, December 29th. We hope you enjoy this holiday time. If you are with your kids, teach them something about money.
Justine
The Two Basic Rules of Credit Cards for Kids
December 24, 2008
I few days ago I shared with you that article from CBS News. The article was pretty scary, but wasn’t very good. The advice wasn’t clear, nor that useful.
So let’s review the two basic rules that you need to institute in teaching your kid about credit cards. And Teens: these are the two most important rules that you need to know in owning and managing your credit card. You need to follow these rules all through high school and college. And you need to try to follow them when you are an adult, unless you need to borrow money for a very good reason.
Rule #1: Never use a credit card to buy something that you couldn’t buy, right now, with cash. If you don’t have the money to pay for it now, in cash, don’t pay for it with a credit card.
Rule #2: ALWAYS pay the credit card balance off every month – then you don’t get charged interest. And if pay the credit card balance in full every month, then you don’t carry a balance and then you don’t have any debt on the credit card.
My housekeeper recently asked me if he should carry a balance on his credit card to increase his credit rating. “NO!” I said. I told him that he, in fact, improves his credit rating by paying his complete balance every month. But he does build his credit rating by charging and paying off his credit card every month. That activity of charging and paying in full is what most improves his credit score month to month.
We will soon review how you help your child follow these rules. Having a credit card is a privilege and that is how you are going to treat this credit card with your kid. If your child can’t manage the credit card properly, then the privilege gets taken away. But, the card can be earned back, as well. It’s all about consequences.
Justine
“Credit Card” does not mean “Credit Balance”
December 23, 2008
Mom. Dad. Teen.
Let’s get one thing straight.
Just because your tween or teen has a credit card does not mean that your tween or teen should have a credit balance. Absolutely not. We are teaching our kids how to use credit cards so that they will use this important financial tool without incurring debt or a credit balance.
We at KidsMoney are teaching our kids how to use a credit card like a “charge card.” Isn’t that what they called them in the old days, in the 1960s and the 1970s? I remember my mom calling it a “charge card” and not a “credit card.” But now they are called credit cards. Maybe because the industry wants you to carry balances and carry debt, and thus use your “credit.” But that is not the way anyone should use a credit card. And certainly not your kid.
Maybe that is why people think I am crazy when I tell them that their child needs to have a credit card? Because they automatically assume that if you have a credit card you need to carry a balance?
Well, don’t.
Get your kid a credit card. In order for her to have a credit card and to keep a credit card, she needs to follow your rules of paying that card off every month and charging items only for which she already has the cash.
More next time.
Justine
Read this link – be forewarned and then act on it.
December 22, 2008
Read this link:
http://www.cbsnews.com/stories/2007/09/12/earlyshow/contributors/raymartin/main3253611.shtml
Be forewarned by it. In fact, be scared by it. But then go act on it. You are learning a lot in this blog that you can act in a smart fashion.
The CBS News article discusses the perils of credit cards for your kids when they get to college. But it is also it fairly sensationalist article, meant to freak you out.
I’ve lead you to this article only to share with you the merits of having your child obtain a credit card now, while he is still in your household, and of teaching him about credit cards for four-t0-six years before he goes off to college or to work. Then, when your kid does head off to college or wherever he is going to go, with all of that practice and knowledge, he will not be tempted by the credit card offers discussed in the article.
Your son will know them when he sees them. He will know how crazy all of these credit card offers are because you will have taught him and he won’t be tempted by them. Besides, he will also already have a credit card. Therefore, he will be able to throw away all of those credit card offers with great confidence. And you will not need to worry about him ratcheting up debt on his credit card because he will have learned not to do that for several years while he was living with you.
There is some valuable advice in this article, and some with which I wholeheartedly agree. Some of it I disagree with. You can make your own decisions regarding all of that.
But you can avoid a lot of problems if you teach your daughter or son how to use a credit card now, rather than avoiding the topic and hoping for the best when she or he gets to college.
Justine
Jon’s Credit Card Statement
December 19, 2008
Jon’s credit card statement came in. I need to work with him to change it, because it only has my name on the statement and then I have to figure out whose statement it is. If it had his name on it, I would know it was his mail and I could let him open it. But I opened his credit card statement and that goes against my credo of delegation to my kids. But Jon, once I handed the statement to him, paid the bill quickly, so I didn’t get to him in time to tell him to make the call to request the change. But I told him to make the call when the next bill came in.
We’ve been doing this for about a year, paying his credit card bill, but Jon doesn’t use the card much, yet, so it is taking time to really learn from this experience.
Remember he went to the movies a few weeks back? Well, Jon’s movie and Max’s movie was on this credit card statement, for a total of $35. I pay for one movie a month per kid, so this was my expense. Together, we remembered that, but we made sure that we documented this fact on this credit card statement for future reference. The night was $35 because I also bought their food. But I didn’t feed them dinner that night, so I am OK with that.
So the payment for the credit card statement came out of my checking account. Jon took the statement and had paid it and put in on the entry hall table for the mail all within about ten minutes. He knows the drill. He wrote the check. But wasn’t sure of the amount to pay.
“Thirty-five bucks, Jon. That is what it says in Total Balance.” I pointed out to Jon that he has to pay the Total Balance, not the Minimum Due.
“I know that Mom.”
OK, Just checking! Repeating! Parenting!
Jon writes the check. But he can’t remember the three points of information that he needs to record on the statement from making the payment.
“1-Date, 2-Check number, 3-Account number. Right Mom?”
“No, Jon. The account number is already on the statement. It is not that relevant. You need to record the amount paid.1- Date, 2-Check number, 3-Amount paid.”
“Right,” says Jon.
One day, it will be second nature to him. But not when you are thirteen. (He turned thirteen a couple of weeks ago!) And not when you are a college kid just diving into credit cards and no one taught you how to keep financial records.
So you teach your kids these really basic things. And you get to, because you have them on a credit card. This is a great way for kids to learn how to pay bills and for kids to learn how to document those payments.
Other mishaps in paying this bill?
“Mom, what about the $.50 payment fee?”
“What $.50 payment fee?”
“You know.”
Me: “No, Jon, the last bill you had to pay $.50 as a result of not paying a previous credit card invoice on time. There is never a payment fee, and if there is, get it reversed and/or change credit card companies.”
“Alright, Mom.” Roll of the eyes.
The other mishap – making sure Jon put the return statement into the envelope the correct way so that the Postal Service could see the address. And putting the stamp on the envelope. Very basic things, but things kids this age have no clue about unless we teach them.
And that is what makes credit cards so much fun. You don’t get this from debit cards!
Justine
Jon’s Bank Statement and his Financial Goals – Part 2 of 2
December 18, 2008
Yesterday I told you about Jon opening his monthly bank statement and evaluating the information in that statement against his financial goals that he had established for himself for the year.
Financial goals are something all of us should have. And it it important to teach kids to have financial goals.
As I mentioned, I don’t do a great job of that, but Jon has financial goals and that rubs off on my other two kids.
And their perspective rubs back off on him. (Some of the fun of having lots of kids!)
Jon evaluated his statement closely after looking at the actual amount he had in the bank. He pointed out to me that he has only made $3 in interest this year. I told Jon that this is part of the problem of having money in a savings account. Savings accounts don’t pay high interest rates, or rates of return, to depositors.
I asked Jon what his interest rate is on his savings account. This was a good exercise in getting him familiar with financial documents. And it was a “teachable moment” because he was interested in the topic, right there and right then. Much better than trying to sit your kid down and teach them about money when they aren’t really interested.
“It’s .25%, Mom.”
Me: “Ouch. That is low.”
Hannah, Jon’s older sister piped in, “That’s why I have some of my saving in a CD, so I can earn more money in interest.”
Jon: “How much more?”
So I walked Jon through it. I told him that I thought Hannah was earning a rate of about 4% on her money, which on $3,000 would be about $120.
Jon says, “Wow, that is a lot of money.” And he smiles.
So Jon is going to explore CDs this weekend.
Justine
Jon’s Bank Statement and his Financial Goals.
December 17, 2008
Jon found his monthly bank statement in the mail and ripped it open. Jon was a bit disappointed to see that he only had $2,400 in the bank. Then he looked at his bank statement a little harder and realized he had read the statement incorrectly. He had looked at the Beginning Balance number and not the Ending Balance number. So the number he was looking for was $2,800.
But Jon was still disappointed. He had developed a personal financial goal of having $3,000 in the bank by the end of this year, in just a few weeks. But then he stopped, and smiled.
“I’ve got $200 in my room upstairs.”
He knew that I knew what that meant. That once he went and made his deposit, he will have met his financial goal and will have $3,000 in the bank. Bully for him!
Point of interest: Sometimes I am gonna tell you our “numbers.” Yes, in this country we all respect our own financial privacy and each other’s financial privacy. But at the same time, we love hearing other people’s “numbers” so that we can get an idea of where we should be or are already.
Nobody’s numbers are right or wrong. But if I tell you some of our numbers, maybe that will help you think about your numbers and what numbers might be right for you. Some of you will have numbers that are “bigger” than ours. And some of you will have numbers that are “smaller” than ours. It is not a measurement game. The person with the biggest number doesn’t win.
This is all just about learning from each other.
Financial goals are something all of us should have. And it it important to teach kids to have financial goals.
I don’t do a great job of that, but Jon has financial goals and that rubs off on my other two kids.
Justine
