When our children are about to leave home, we want to do everything we can to make the transition easier. But occasionally “smoothing” is gone too far, and our children leave the house without the excellent sense God bestowed upon a goose!
Prepping for a life on their own begins far sooner than most parents believe. Whether it’s learning how to cook – cooking KD in the microwave doesn’t count – or how often to change their bedding, clean the toilet, or sew on a button, youngsters are at a loss since they’ve never been instructed what to do or how to do it. Your child, like the youngster who puts tinfoil in the microwave and then claims, “but I didn’t know,” may be unaware of some of the things you take for granted, such as how to manage her money.
When children are young, we have no issue retraining their behaviour, giving them step-by-step directions on how to complete a new activity, or patiently watching as they learn a new ability. We are afraid of doing anything that would alienate them when they get older and begin to push back. There appears to be more distance than we would want.
Sure, there are the parents who regularly make their kids clean the house from stem to gudgeon. But I’ve been with those kids as they talk about “escaping” home and never coming back once they break free of their parents’ control. One girl I know whose mom refused to allow her to come to a mixed sleep-over party the weekend before she left for university probably doesn’t know that her daughter refers to her as “The Nazi”. Ouch!
So we have to walk a tight line between teaching our children the fundamental skills they’ll need to go out on their own and giving them the space they need to make – and learn from – their own mistakes.
At the absolute least, our children should understand what it takes to keep body and spirit in sync: how to clean up after themselves, how to shop for and make certain basic meals, and what to do in the case of certain sorts of catastrophes. That’s not to imply you should cut the apron strings totally after kids leave the house. But it does assist if they know a little little about dealing with the life they’re about to embark on.
And there are money lessons to be woven into all of the life lessons. How to food shop on a budget; how to make meals that go a long way; and why it’s critical to keep a financial reserve in case the caca hits the fan.
There are the seven essential money skills I think every kid should have before he breaks out on his own. You won’t be surprised at any of these. Not really. So this is your opportunity to take a good look at your kid to see how good a job you’ve done thus far teaching the important money lessons.
Essential Money Skill #1: How to live on a budget.
The thing about a budget is that it not only shows you where you’re planning to spend your money, it asks you to make choices every time you get the urge to spend. Want to go to a movie? If you don’t have any more money left in your entertainment budget, will you use your food budget or your transportation budget to see the flick? It isn’t about NOT seeing the movie. It’s about what else you’re willing to give up to see the movie.
The idea of living on a budget also gets kids used to the difference between their “needs” and their “wants”. They can spend more or less in a particular category of their budget, but they cannot spend more money than they have, so it’s important to understand what their Essential Expenses are: that’s the money they’ll need to spend to keep body and soul together.
- Sit down with your child and talk about your own budget, how it works, why you use it, and what it helps you achieve. Never mind the whole “privacy” crap. This is your kid, and if you can’t use your own budget to teach him a thing or two, you’re missing the mark completely as a parent!
- For several months before she leaves home, have her work on your budget with you.
- Have him make a budget for moving out on his own. Whether he’s leaving home to work or to go to school, if he goes with a plan in hand, he’ll be that much more likely to succeed.
- Keep your hand out of your pocket. If you keep bailing Bunny out of the hole every time she digs one, she’ll never feel the pain and she’ll never learn. Once you’ve established the parameters for how you will help, stick to it. If you’re offering to pay $50 on the cell phone, don’t cover the $100 bill. Pay your $50 and watch the service get cut off! It’s hard, I know. But you know what? It’s way easier to do it now than when she’s got two kids in tow.
Read also: The Ultimate Guide To Save Money
Essential Money Skill #2: How to manage a bank account.
Every teenager should have his or her own bank account and understand how to use an ATM, execute a debit card transaction, write a check, and reconcile a bank statement. There are some adults who are unable to balance their bank statements. If you are one of them, you should also learn.
If you believe that taking your ten-year-old to the bank and creating a bank account implies you’ve completed the task, you’re mistaken. Have you shown Little Miss how her statement’s debts and credits work? How can I move money across accounts? Have you discussed how interest works and why it’s critical for money to work as hard as humans do? Have you discussed the fees that are frequently levied and how fast they may pile up? What about the enchantment of compounding return? What is the 72-hour rule? You’ve got some explaining to do.
- Sit down and explain how banking works to your young’un. It doesn’t matter what he thinks he knows, you still need to have this conversation. Use the Socratic Method so you don’t totally bore him to death. The Socratic Method? What the Dickens… In a nutshell, that’s when you ask questions and let your child provide answers, correcting any misinformation as you go. It beats the Pedantic Method – I talk, you listen – by a mile.
- Savvy shoppers may already be hip to using a debit card. Are they also hip to all the ways people have of stealing their identity? See, you aren’t done yet.
- Telephone banking and internet banking may be new to you if you’re an old dog, but they are a natch for your kids who live on their computers and cell phones. If you’re not already banking online, get your kids to show you how. There’s nothing like teaching a lesson to learn a lesson.
- Have your child reconcile your bank statement a half-dozen times till he’s good at it. Can’t remember how? Look under “Resources” for How To Reconcile.
Read also: 10 Finance Tips From an Empty Nester
Essential Money Skill #3: How to comparison shop.
You might be very used to comparing the prices of similar items or brands, or comparing the prices at different stores to get the best value, but your kids probably aren’t. While a price comparison is a no-brainer, they may stumble when it comes to the comparison on quality, learning the hard way that “you get what you pay for.”
This is a lesson you demonstrate. You show your children by example that taking the time to look at the cost and quality of an item means you really care about where your hard-earned money is going. If environmental issues are important to you, this is a good place to address those issues too.
If you buy something, put it in the cabinet with the price tag still attached, and never use it, you are sending a powerful message to your children. You’re sending a powerful message if you take something faulty and fix it, clearly describing not only the money savings but also the inherent benefits of making do.
One of the best places to start your lessons on comparison-shopping is the supermarket. Once you’ve mastered the concept of unit prices at the grocery store, you can move on to The Gap versus Old Navy, and Future Shop versus Best Buy.
- Take your child grocery shopping and explain unit prices. Look at the packaging and talk about how deceptive it can be. Talk about name-brands versus store-brands. Do a “taste test” to see how much of a difference there really is and bring home the idea that a bigger price doesn’t always mean better value. But sometimes it does.
- Talk about how you comparison shop using fliers, coupons, or whatever else you do to stretch the grocery money.
- Talk about how to plan meals. Make her responsible for planning, shopping for, and prepping at least one meal a week.
- Have him do the grocery shopping for the household for several consecutive weeks.
- Have her comparison shop the next major purchase your family has to make, be it a new car, a vacation or a new bed. This is a good place to review quality versus price, and reinforce the importance of “warranties” and “service.”
So many of the lessons we have to teach our kids about money are wrapped up in the lessons we should be teaching them about life. For a long time we haven’t talked about money because it’s been a big no-no. But you see where THAT has got us. And some of us are so doggone determined to ensure our kids have a great life, that we’ve been protecting them from the very experiences they need to become fabulous in adulthood. Home is a place to experiment with new skills in safety. If they blow something, you have the luxury of being able to talk about what to do differently next time.
Leaving home is stressful enough as it is. Having the skills to cope with some of the life’s basic issues is one way to ease that stress.
Read also: How To Keep Your Groceries Under Budget
Essential Money Skill #4: How to manage bills and other paperwork.
I can’t believe how many individuals just dump their garbage in a drawer, never examine their bills, or put everything off until the last minute. It’s no surprise that banking institutions profit handsomely from NSF fees and overdraft protection. If you want your child to be one of the morons who ends up paying too much in bank fees, then let this lesson slide through your fingers like those overdue invoices.
Having a system for money management isn’t hard, but it does take some discipline. But Gail… I hear it now… I can’t get him to put his dirty dishes in the dishwasher… I can’t get her to pick her clothes up off the floor… I can’t get them to (fill in the blank with this week’s tick-off). I know, I know, they are messy thinkers and messy livers. But that doesn’t negate the need for you to teach this lesson.
If you’ve already taught the budget lesson from EMS#1, then your child already knows how important it is to keep track of every penny. What she may not know is the consequence of missing a payment on a credit card, being late with a bill payment, or not keeping track of her paperwork.
- Give your kid a small office in a box so he has everything he needs in one place. Review the process for getting financially organized.
- Explain what a credit history is, and how missing payments can mess it up.
- Create an employment file. This is where Molly will put her paystubs and tax forms. Talk about taxes, the fact that certain expenses can be a write-off and save money, and how to keep track of those expenses.
- Have Junior make a Personal Property Inventory including photographs and serial numbers for everything of value that will be leaving home with him.
- Create a Student Loan File which includes all student loan information, a projection of how much student loan debt she will have when she’s finished her degree, how much her payments will be when she begins her loan repayments, and when those repayments start. If Susie has already finished school and is now striking out on her own with student debt in tow, this is still a very useful exercise.
Whether your son or daughter is living in residence or living in an apartment, (s)he should know what it’s costing. Create a file that contains all the pertinent paperwork for the lease/rental/residence. Make sure your kid knows this is being paid with “NET” income. Go through the exercise of figuring out how many hours of work it will take THEM to keep this roof over his head and food in her tummy.
Essential Money Skill #5: How to save for a goal.
Everybody needs to learn to set aside some money for the future. Most young adults have NO interest in retirement planning. They’re coping with making it to the end of the week, never mind the end of their working careers. But without a sense of how important “saving” is, they could end up never figuring out this very important lesson.
Even when they are small, kids need a reason not to spend. Whether it’s saving up to buy yet another pack of Pokemon cards, a new bike or an iPod, learning to set money aside for the future is an important skill. NOT SPENDING is a tough lesson, but one that can be nurtured.
As kids get older, the idea of having to delay gratification comes more naturally to them. It’s amazing just what teenagers will do to get what they want. Of course, “want” is an important part of the equation.
I know a young man who never wanted much. With little desire came a small amount of ambition. Despite being very bright, he never excelled at school. He never much cared what kind of job he had or how much he made. He sort of just coasted, eking out just enough. He had been taught this lesson by a stern mother who made it clear from he was a tot that he shouldn’t want anything because he wasn’t going to get it. The lesson stuck.
There’s nothing wrong with wanting. It’s what drives us to get a good education, to save for a home, to achieve some level of success. Whether you want to earn buckets of money, want to make a difference in people’s lives, or want to live peacefully in the world, ambition is a good thing. And since money gives us choices, teaching the lesson that having some makes achieving what we want easier is important.
- Whether your child is eight or 18, show her how to set a goal, break that goal down into small, measurable steps and prioritize to achieve those steps.
- Talk about establishing an emergency fund. How have you had to use your emergency fund? How might an emergency fund save your goose? How might it save his? Help him set the parameters for building his emergency fund.
- Explain the difference between long-term saving and planned spending.
- Find an on-line calculator and show her how long-term compounding makes saving easier. Using a retirement calculator, demonstrate the growth of $100 a month starting at 22 compared to starting at 32 and 42. This not only demonstrates how to put time on your side, it also shows how even a little saved for a long time can make a big difference.
Essential Money Skill #6: Credit is NOT disposable income.
Yes, I realise that contradicts everything everyone else has said, but credit is NOT disposable money. Student loans should not be utilised to go out to eat. Credit cards do not serve as a “entertainment fund.” And a line of credit is not the same as an emergency fund.
Debt has grown so ubiquitous that it appears like everyone is burdened by it. You may believe that this is “normal.”
Your children could as well. However, it is not typical for someone who is financially secure. And if you bought into the idea that making the minimal amount is sufficient, rest confident that your children did as well. After all, if you can get a brand-new laptop worth $1100 for $34 a month, it sounds like a no-brainer.
If you haven’t already, read Student Debt Legacy, and make sure your college or university-bound child does as well.
- Once your child is 12 or older, teach her about credit, how it works and the costs involved. Give a young child a credit card on the Bank of Mom so she can learn how to use it.
- Older teenagers can apply for a credit card with your co-signature. Make sure the limit is low … no more than $300. Have your child learn to use and repay the credit card, keeping track of purchases and making payments on time until the habit is established.
Tracking Your Money
- In a small notebook, write the current balance in your bank account at the top of the page.
- Each time you use your credit or debit card, write a cheque, or take a cash withdrawal, write down the amount spent and subtract it from the balance. Don’t forget to debit the automatic withdrawals that come out of your account every month for things like car insurance or loans.
- Every time you make a deposit, add it to your balance.
- You now have a real-time balance that shows how much money is available to spend. And you can’t spend money you’ve already used elsewhere (like on a cheque that hasn’t cleared, or on a credit card transaction that hasn’t come due).
- When your credit card bill comes in, check the transactions against the list in your notebook. If there’s something on your statement that’s not your doing, call the credit card company right away and identify the wayward transaction.
Tell your young’un about his credit score, what it is, how it works and how to make it suck! Ask him what he thinks would happen if he got a bad credit rating and a low credit score. Explain that with a low score, interest rates go up and the likelihood of getting a loan you really need goes down.
Essential Money Skill #7: Keep Money in Perspective
This is one of the most important lessons you can teach. I was at a small party a while ago when a teacher-artist-mom started telling me that her son was at university. He is a wonderful artist, but has decided to not follow his true love because he wants to be able to make lots of money. She was a little sad.
I have to be honest, I’m of two minds on this: first, I commend the young lad for being practical and recognizing that the life of a starving artist isn’t easy. Second, like his mom, I’m a little sad for him. If he has to give up what feeds his soul so he can have loads of stuff, I wonder just how happy that stuff will make him.
He’s young yet and with a business degree may find a way to make both work together. Here’s hoping.
Money, in and of itself, doesn’t mean anything. It’s what you do with the money. Money is a tool, a means to an end. If you don’t know the end you want to achieve, you’re likely spinning your wheels.
People exhaust themselves trying to maintain lifestyles they can’t afford. Whether it is the social pressure to conform or our a sense of entitlement, so many people are willing to put their futures at risk so they can make the right impression. They MUST drive the right car, watch a high-definition television, eat out three or four times a week, drink the best Bourbon, take the right vacation. And many people are willing to spend money they haven’t yet earned to maintain the illusion. Keeping Up With The Joneses is a dangerous game. It will not only sap your bank accounts, it will sap your life’s energy.
One way to help your child gain some perspective is to talk about what it is she really wants in life. I often talk to my Alex about how important it is to live a worthwhile life: A life that brings challenge and love, that allows you to share, to laugh, and to be happy. So, what makes your life worthwhile? And what are the things that your child thinks will make her life worthwhile? And what is she doing to put more of those things into life?
It can’t just be about money, or more money. According to Dr. Tim Kasser, associate psychology professor at Knox College, and Dr. Richard Ryan, psychology professor at the University of Rochester, people who rate making money as a primary goal score lower for mental health. They are at a greater risk of depression, are more anxious and suffer lower self-esteem, and have more relationship problems.
- Talk with your kids, using questions like these as a spring-board (not all at once… over time):
- What jobs would you NOT do for money?
- If someone offered you $50,000 to do something that might end up being a bad thing (you’re not sure right now), would you do it? Why or why not?
- If a cashier gave you the wrong change, what would you do?
- A friend asks you to lend her $500 for a couple of days. You have $500 in the bank to pay your rent next month. Would you lend her the money?
- Your boss didn’t pay you last week. He was short the cash and said he’d make it up this week. When you show up for work, he’s not there. Neither is your pay. What would you do?
- What would happen if money grew on trees?
- How much money is “enough”?
- What makes you happy?
- How can you work at something you love while taking care of yourself financially?
- If there are areas you think your kids are a little wobbly on when it comes to either their money or their life skills, it’s not too late. It’s never too late. I got some of my most important money lessons from my mom long after I left home. It was at her urging that I took out disability insurance while I was young and healthy and could afford the premiums.