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Tuesday, September 28, 2010

You can be young without money but you can't be old without it. Part 2

What is the next step in money education as your child enters the teen years. Each family handles money differently and will have a unique approach.  By the time your child reaches Middle School their allowance should be of a decent amount, what the amount should be needs to be determined by the family; I can only speak to what we have implemented in our household.  The allowance figure we settled upon for our daughter was enough to allow her to go to the movies and buy a snack each week. Now our daughter does not actually go to the movies each week, instead she saves the money and uses it to buy things she wants like I-tunes account funding and make up. The idea is that your child should be responsible for their entertainment dollars and specific items that are beyond the prevue of parental buying which is decided on a family basis. This allowance concept works well even in to high school’s freshman year where you want your child to focus on getting and education rather than acquiring spending money.

Once your child begins their sophomore year they have gotten the hang of the big changes that come with attending High School. Starting in their sophomore year you can implement a more advanced system to educate your child on saving and budgeting. You can set up an account with your bank specifically for your child and have a debit card attached to the account. Then you set up parameters regarding what are the child’s responsibilities toward their monthly expenses as well as what they can expect in support from you. For example, in our household our daughter who is now on this system is responsible for her cell phone bill and entertainment; and at specific times of year clothes and or gifts have become her responsibility.

We encourage our daughter to save money and think about what she is spending on but ultimately she is responsible for managing the account. She knows that she gets a specific dollar amount cash infusion on the first of each month and that at least her cell phone bill is deducted on the second to last Friday of the month; so she can plan accordingly. If she does not have enough cash in her account to cover the cell bill then just as in real life the phone is shut off(taken) until she can reactivate it. Times where she needs to buy clothes or gifts additional funds are added, however, she has to decide what she can afford within the scope of her own funds and is not allowed to ask for additional funds. This is no different than you dear reader not being able to go in to your boss’s office and asking for a raise because you spent too much.

While this system can be implemented using any type of savings or checking account I highly recommend an account that provides a debit card. The debit card provides several terrific features. First the debit card is more flexible than a straight ATM card since it can be used at point of sale or even online in many cases. The debit card also reduces the child’s desire to walk around carrying lots of cash since they know they can swipe it at the Starbucks and use it in place of cash. Additionally, a kid’s use of the debit card over cash provides them with an audit trail so they can remember where and how they spent their money; which is a valuable tool for them to understand where they are wasting money too.  Furthermore, the debit card can be set up with no overdraft so once the child has exhausted the funds and tries to use the card the transaction or cash withdrawal will be refused automatically, in this way there is no chance of them running up the overdraft as a surprise for you. You will also have to make the time at least at the beginning to review their account with them so they can understand the statement and see their money flow. Later on the child can be introduced to checks and actually paying bills; which would be especially prudent before the child leaves to go to college so they understand how to handle the bills.

Once they are a sophomore their world also opens up to the idea of a part time job to supplement the funds that you provide to them. In many states kids can obtain part time employment after school beginning at the age of 14 and having a job introduces them to both more financial freedom as well as introducing them to the satisfaction of earning their own way. With a part time job, assuming it doesn’t affect their school work, a child can keep up with the growing expenses of today’s youth, for example, if you have not checked the prices of the latest games for a Sony Playstation 3, they are pretty high. Of course as a parent you must still provide guidance and spending rules especially early on in their experience with a part time job. In other words, if you have family rules about certain things you need to make it clear upfront that even though they are earning the money they still cannot purchase certain things that are objectionable or participate in activities that you would be against funding. You are still the parent and need to guide the child at these formative stages. If as a parent you invest the time in teaching your children the basics of financial responsibility it will not only be a benefit to them but will pay you dividends of peace of mind in the long run. As a parent you never stop worrying about your children and you always will but you can worry less if you arm them with the proper skills and values to be happy productive and responsible members of society.






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