Friday, January 19, 2018

The Best Way To Teach Your Kids About Future Expenses

What's up everyone?  Today I read an article about a mother, whose Facebook post on teaching her daughter about money, has gone viral.  I don't have the Facebook post to share, but I can refer you to the site here.  Main thing is that the mother (Mrs./Ms. Essence Evans) is teaching her daughter, in a very unique and clever way I may add, how the real world works when it comes to spending.  The controversy, and indeed the reason why the post became viral, is because the child, at five-years-old, is considered too young to be learning about money like so:

Image result for money lessons for kids

1)  Mother gives daughter $7 a week.

2)  Mother takes back from daughter $1 for rent, $1 for electricity, $1 for water, $1 for cable, $1 for food.  This amounts to $5 of real-life adult world charges the child has to pretend to pay back.

3)  Mother allows the daughter to save or spend the remaining $2.

4)  Mother actually saves the $5 in an account and will surprise daughter when she turns 18, giving her over $3,300 in cash to move out or use in any way.

Image result for Mother charges her 5 year old for rent
Essence Evans and her daughter

Let's discuss the merits of this technique:

For starters, the daughter learns how bills (expenses) work.  At five, she has no doubt seen her mother paying bills online or by writing out checks.  Now it becomes an experience she can relate to.  Moreover, the daughter can appreciate what "savings" is.  With an allowance, a child gets a set amount for chores or whatever agreement is shared within a family.  Children getting allowances never experience "parental" expenses.  They simple learn how to spend, how to save, or how to give.  All are great lessons, of course.  If a child, like Evan's 5-year-old experiences money taken away from her, she may value the remaining $2 a whole lot more, leading to more conscious decisions on spending or saving for toys, candy, etc.

Now let's talk the concerns with this technique:

From comments I read, the issue for some people is that Evan's daughter is a) too young to understand, b) may feel burdened by these concepts, and c) may experience financial insecurity when she should be enjoying childhood.  These are all valid concerns, but are they perhaps too damning?

Parenting Styles Differ And Not All Kids Are The Same

Let's acknowledge that little 5-year-old girls are different than little 5-year-old boys.  Also, not all 5-year-old children in America are the same.  Some children have above average maturity at age 5.  My daughter is such a child.  She preferred talking and being around adults at 5 more so than being around kids her age. All to say that let's not be too judgmental.

If it seems to harsh for you to do this to a 5-year-old, don't!  Wait until your child is a little older.  I suggest, 7.  Also what matters at any age for a child, is how you present the lesson.  If your approach is to treat the lesson more like a game, a child may be less inclined to see the "take back" as a punishment.  Moreover, make sure they understand that you're playing the role of a teacher, who happens to be a mommy or a daddy.  That way they don't associate "mommy taking my money" negatively.  In other words, the adult is also "pretending"!

How to Tweak this $$$ Lesson and Make It Even Better!!

Okay, I first have to give major props to Ms./Mrs. Evans for figuring out how to simulate the real world and teach personal finance to a 5-year-old.  Great job!

After thinking it through, I have a way you can tweak this lesson to simulate real-world expenses even better.  Since the changes are a little more convoluted, I suggest you do this with ages 6 and up to teens.

Ages 6-7:
Assign a simple to do chore or chores (no more than 3) to your child.  For example, they have to place napkins and silverware on the table for dinner each night.  Another example: They have to take out the recyclables to the bin in the backyard every day after school.  The chores will represent having a job and earning a salary (allowance) from it.  The pay will be $10/week.  The charges will be:

Rent: $3
Food: $1
Water: $1
Electricity: $1
TV/Streaming/Internet: $1
Income ($10) - Expenses ($7) = $3/week or $12/month 

Notice the rent is $3.  This is actually closer to what adults spend on housing.  Housing is 30% of a household budget for many Americans.  You decide what to do with the $28 you get back each month.  A Roth IRA for your kid is my suggestion.

Ages 8-12
Again, assign at least 2-3 chores.  You can level up how much harder you want your child to help you around the house.  Let's not forget that in the early 1900's, kids were helping around the farm, certainly working a lot harder than kids these days.  The pay will be $12/week.  The charges will be:

Rent: $3
Food: $1
Water: $1
Electricity: $1
TV/Streaming/Internet: $1
Cell Phone (If your child uses one at these ages): $1
Income ($12) - Expenses ($7-$8) = $4-$5/week or $16-$20/month

*By now your child should have learned that housing is very expensive.  They should also be wondering about whether or not using a streaming service is worth it.  They may want to strike deals with you.  Make sure you don't deviate on the price of rent, food, water, and electricity.  Last thing you want is a kid trying to bargain himself out of a shower.  Ha!  You could, however, use watching television, gaming, or use of Internet for non-educational purposes as a bargaining chip.  Maybe you don't charge them a $1 if they spend less than two hours a week watching YouTube video, Netflix, surfing the net, etc.??

Ages 13-18th Birthday

Assign the typical teen chores (cleaning their room once a week, e.g.) and add some life skills ones, e.g., doing your own laundry.  The pay will be $15/week.  The charges will be:

Rent: $3
Food: $1
Water: $1
Electricity: $1
TV/Streaming/Internet: $1
Cell Phone: $1
Transportation: $1 (Your high schooler will want rides everywhere)
Income ($15) - Expenses ($9) = $6/week or $24/month

*$24/month is not very much money for a teen these days.  Notice though that you're not charging them for clothes, money for the dance, etc.  You're still defraying the costs of these miscellaneous teen expenses.  So they may have all of their financial needs met, meaning they can save the $24 for additional things they want or even for college.

The Right Way to do This

The right way to do this is to hand your kids their "income" each week so they can feel the entire amount in their hand.  Don't just give them the difference of the income and expenses because it's more convenient.  For it to be most powerful, they have to feel the "pain" of giving money back to you, the bill collector.

Staying consistent by giving your child his/her income on the same day of the week, each week, also simulates "pay day" the best.  Let them hold onto all their income for at least 24-hours, and specify when all of the "bills" are due to you.  If they're late in paying you, tack on an additional $1 charge.  If they fail to keep their end of the deal on more than one occasion, terminate the arrangement until they're more mature to start at it again.

Thanks for reading!  What are your thoughts on all of this?    

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