Teach Your Kids Financial Responsibility

Our children are living in an expensive, fast-paced environment where they are growing up way too quickly without any sense of financial responsibility. From TV shows like MTV's My Sweet 16 our kids are growing up thinking they deserve things without earning them. They want Coach purses, the latest cell phones with all the fancy features, expensive jeans and clothes with the fancy logos while often times, regular parents simply cannot afford their trendy desire to keep up with the Jones'. If Mom or Dad can't afford it, they go looking for after school jobs to help finance their latest fetish. Once they decide to open a checking account with the intentions of spending their money as they wish they are faced with a severe reality check... they might need a credit card! In their naive little minds, they automatically think it's FREE money without the understanding of what an interest rate is or what it means to them. Before you know it, your young adult has found themselves in a financial mess that they think Mommy and Daddy can remedy for them like sticking a band aid on a scraped knee. Some parents may find themselves drowning in debt with their kids when they opt to co-sign on a vehicle or credit card, or share a joint checking account with their young adult. Before the you-know-what hits the fan, here are some very important guidelines to keep in mind as you teach your kids about money and financial responsibility:

1. Start talking to them about money as soon as possible. Each year when they receive monatary gifts, don't let your child burn through their funds faster then they could open the card it came in. Think about opening a savings account, ask your child what they REALLY want to spend their money on, if its something expensive then they may need to save up until they can afford it. Do not feel pressured into paying the difference for them so they can have the item NOW.

2. Consider their allowance as their earnings. Instead of giving your child $10 a week to spend as they wish, or $10 each time you take a trip to the mall, consider paying them for their chores and keep the money in a "safe" place where they cannot have easy access to it. For example, $1 for taking out the trash, $1 for washing the dishes, $1 for washing their clothes, another for folding and putting their own clothes away, $1 for vaccuming, $1 for making their bed, $1 for cleaning up the mess they made, and so on. Not only have they contributed to the household chores, they are developing a sense of earning something for doing something. If they don't do as they are told, subtract a twenty-five cent fee for failing to perform their chores (duties) so they understand the concept of earning even further. This will motivate your child to want to work hard so they can reap the benefits. Instead of buying several random things, consider one specific item or set goals such as a trip somewhere, let them pay for their own ticket and you pay for their food and souvineers, so if Johnny wants a new toy or a trip to Six Flags, let him save up and earn it.

3. Talk to your kids about wants vs. needs. They may want a new bike, but what they need are new shoes. When your child asks you for something, you don't have to say NO all the time, think to youself: "Is this a want or a need?" As an adult, you know the difference, then ask your child the same question. They may start to "need" everything they see, if that is the case, ask them what needs does the item satisfy? More then likely you will be able to help your child in establishing the importance of the differences of wants and needs.

4. SAY "NO" TO CREDIT. If your child wishes to purchase something and they can only afford a portion of it then ask you to pay the difference while promising to pay you back, the answer is always NO. Remind your child, if they can't afford it, then they don't need it now. This will help your child or teen develop the understanding that there will be times when they will need to SAVE money before they can spend it. This is also a great opportunity for them to learn that they should never spend beyond their means. When you have a College student, I suggest using pre-paid credit cards instead of debit cards or credit cards that have any interest rates. When attempting to "build" their credit, start off with small credit cards, have them purchase something small and pay it off immediately, do this a couple of times to establish on time payments and payments made in full. The key here is to only spend as much on the card that can actually be paid in cash the same day if necessary, as soon as the bill arrives, pay it in full as fast as possible without having to wait until next pay period.

5. Report cards ARE earnings. Parents should decide how much each letter grade is worth, for example: an A=$5, B=$3, C=$1, D's & F's=$0. Again, use this as an opportunity to encourage your kids to earn things while striving for academic excellence. Remember to reward academic improvement, perhaps an extra $5 for each subject that has improved from the last grading period.

6. No earnings while grounded. When your child is being punished they should understand that it's kind of like Monopoly, when you land on "Go to Jail", you go directly to jail and do not get the $200 for passing GO. Be firm on your punishment because there is always a lesson to be learned from it. They may think twice before misbehaving if they know that they will not be rewarded for their hard work during their punishment, but remind them that they still have RESPONSIBILITIES to perform around the house.

7. Grades and extracurricular activities. If grades are falling then it may be wise to pull your kids from participating in after school activities, but be sure to give at least two warnings before doing so. In Jr. high and high school, there are usually a couple of grading periods before the end of each season of sports. At the beginning of the year, warn your child that if their grades are not passing (C or better) they will be pulled out of sports, after reviewing the first report card, give them their second warning, once the second report card comes along or if you receive notice from their teachers that they are not passing, pull them from their activities. However, do not ground them, instead, schedule them for tutoring to give them the opportunity to improve their grades and earn their right to participate in another acitivity next time around.

8. NEW car Vs Used car. I strongly suggest purchasing a good used vehicle that parents and teen can pay for with cash instead of financing. Adding your teen to your insurance policy will cost you enough as it is, but to add another car payment with the possibility that either you or your teen may not be able to afford the payments puts you BOTH at risk for having a reposession on your credit report(s). This allows your teen or young adult the ability to understand the concept of saving money that they have earned to buy something they really want... freedom.

9. Savings account plus10%. When opening a bank account for your kids, remember that the most important account is their savings account. No matter how much they have saved up to make their purchases, be sure to leave a small nest egg for emergencies. In addition, when your teen begins working a part-time job, remind them to set aside 10% of their check to their savings account to access only when absolutely necessary.

10. Checks and Balances. One of the most common financial disasters besides credit card debt is writing rubber checks. Young adults don't quite understand the concept of bouncing checks or check kiting unitl they have gotten themselves into trouble. Avoid these problems by explaining to them how important it is to balance their check books. Remind them not to over spend because of the severe legal consequences they may have to endure. Before allowing your young adult to open a checking account, research state and federal laws regarding such consequences, remind them that some penalties include going to jail and paying heavy fines. This is also the perfect time to explain to them that they are no longer your responsiblity and as an adult, they are responsible for themselves and their actions.