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Teach your children well (What you keep - Part 17)
Learning financial responsibility can start early with your children – especially before mistakes carry huge costs

By Steve Freidell
Land Line contributor


Having kids in your life is one of the greatest pleasures a person can experience. After all, who would miss teaching a child to walk, talk, or ride a bike? Furthermore, the bonds created between parents and their children are often formed through shared activities such as fishing, hunting, shopping, play, or whatever other experience the family may share together.

But how often do you sit and think about preparing your child for financial experiences as much as you think about planning your next weekend outing? You wouldn’t let them climb into your cab and drive down the highway with no driver’s instruction, would you? But many let them go off to school with little or no education of what it takes to be financially responsible in life.

If we fail to teach our children at an early age to avoid financial mistakes, we are only setting them up for failure in the future. Here are some simple suggestions for teaching your child to be a better manager of money.

First, help your child establish a budget for their monthly expenses. I recommend you help them do this, not do it for them. It may take several attempts to get it right, but that’s what teaches them your first financial lesson.

Start by asking them to list every expense they have had over the past three months. Then organize those into expense categories. These categories will vary depending upon the age and activities that your child is involved in. Don’t forget sports registrations, clothes, school activities, entertainment, dining out, haircuts, bicycle repairs, clothes, video games, school supplies, etc.

Next, total the amount they have budgeted for their expenses and determine how much your family has budgeted toward helping with these expenses. Then ask your child how he or she expects to make up the difference.

If you are covering 100 percent of the expenses, perhaps you should reconsider that level of commitment. Teaching your child to associate hard work with attaining monetary gain is one of the most valuable lessons in life.

Most families have a list of duties, which earn a set fee. Kids are adaptable and learn quickly the value of money. If they want that video game, they may have to choose between washing your truck, doing some dishes, or tackling another item on the list. After you have determined how much your child needs, formulate a budget and determine what shortfall needs to be made up.

The next step is to prioritize their categories. Too often the lure of the video game causes memory loss regarding the other required payments and expenses during the month. To avoid this problem, set up a series of envelopes corresponding to the child’s choice of categories.

Pre-fund the envelopes with money according to their budget and yours, and leave the discretionary expense categories unfunded. Place money in these envelopes as your child completes his or her jobs. When the child has exhausted the money in any single envelope, no further expenses can be made that month. After a while, allow your child to carry over unspent money from one month to another, but do not allow borrowing from one envelope to another.

As your child ages, you must increase the amount each child has to spend, as their needs will change. Adjusting the amount paid for jobs is also required until that child is the age where outside employment is available.

You must refrain from loaning money for unanticipated expenses. However, if necessary, obtain the video game or other prized possession until the loan is repaid, similar to what a bank might do in requiring collateral on a loan. A child who grasps the concept of a budget and expense categories can better understand how that fits in with the family’s budget.

Every month, sit down and review with them not only their results, but the family’s as a whole. Avoid any kind of financial competition between siblings as each person learns at his or her own pace. Life experiences are the best teachers.

Kids have an uncanny way of surprising their parents and quite often they can catch more fish, can ride a bike faster, and understand concepts more easily than when we were their age. Don’t be surprised if some days you find your kids have more extra cash than you do. Just realize that you have taught them well.

Don’t lecture them on what to spend their money on and try not to save them from making mistakes. It’s so much easier to learn at an age where a simple mistake does so little harm. Not allowing mistakes sets them up for much larger failures in the future.

With a little luck and a lot of patience, kids grow up to be responsible adults who understand money and how to best manage it. They’ll be better educated, more knowledgeable, and able to enjoy successes in life that many of their peers will not. LL

This material has been prepared for informational purposes only; it is not intended to provide and should not be relied upon for accounting, legal or tax advice.

Steve Freidell has assisted clients in their cash management, trading, and portfolio management of fixed income securities since 1975. Steve started his career at the First National Bank of Kansas City and later served as first vice president with Commerce Bank, where he served his clients for 25 years. In 2006, he joined the DeWaay organization, the financial management company used by OOIDA. Steve Freidell may be reached at