By Sylvia Lonner
My parents were never great with money. They used credit cards as extra income, getting buried under a pile of debt. They took out a second mortgage on the house. And they never put any money aside for retirement. So now, when they should be enjoying the prime of their lives, they are buried under a mountain of debt.
I learned everything I knew about money from them. So when I first left home, I did all the wrong things. Soon, I was buried under three maxed-out credit cards, a car loan I couldn't afford and student loans I kept deferring. That was the moment I decided that being in debt was not the way I wanted to live. I did all the research I could on handling finances and how to get out of debt. I took a second job. And I slowly climbed my way out of the hole.
Now that I'm married and have kids, I don't want my kids to make the same mistakes I did when it comes to money. I want them to be as educated as they can be about how money works, what credit and debt is, and how to not only keep their heads above water, but how to save money and feel financially stable. So my huband and I devised a plan to make it easy and fun for my kids to learn these lessons.
The Bank of Mom and Dad
Let's be honest, banks hold the world's finances. Between checking accounts and credit card and mortgages and investments, they are the ones to go to for all your financial needs. So the first thing I decided to do when my oldest turned 3 was to set up "The Bank of Mom and Dad." We would hold all the tools that the kids needed for any of their financial decisions. All birthday money, earned money or even found money would need to go directly into the "bank."
From 3 until 6 or 7, they were only allowed to deposit and withdrawal from the bank. We even made them fill out a "withdrawal form," which was usually a creative drawing of what they were going to buy or a short explanation of why they needed the money. The kids had fun with it, and they were learning a valuable banking lesson.
Earning an Income
We never wanted to give our kids the idea that you can be giving money for nothing. We wanted to give them an allowance for spending money, but we wanted to make sure that they had a sense of earning the money as opposed to just being given it. So we set up a chores chart for each week, and we would put a dollar amount next to each chore.
- Washing the dishes after a meal: $2
- Cleaning your room: $5
- Mowing the lawn: $10
- Cleaning the basement: $20
And so on. It was first come first serve, so whoever asked first would be allowed to do that chore. It not only gave them a sense of earning their money, but it gave them perspective that hard work is, well, hard, but it can give you a greater reward.
Giving the Kids Some Credit
After age 6 or 7, we allowed the kids to "apply" for some credit. If they said they were ready, we would sit them down and go over all the withdrawals they made (which was really just flipping through the drawings or notes they created, which is a lot of fun in itself), and we would let them know, based on how they spent their money, if they were ready. If we decided they weren't ready, we would give them a month or so to change their spending habits to show us they were ready for credit.
Credit and interest: If they were "approved," we would then open a line of credit to them. Say $50 to start. If they borrowed $50 from us, they would have to pay it back within the month or interest would be charged. We weren't as mean as the banks, so the interest rate was 0.5% a month; just enough to teach them about how interest works but not enough to put them in major debt with us.
Minimum payments: If the kids couldn't pay the full amount, we gave them a minimum payment that they would need to pay in order to keep the line of credit open. So say they borrowed $20, and didn't pay the minimum payment, they couldn't use the other $30 in credit until the minimum payment was made.
Over the years, the kids were allowed to apply for credit limit increases, and based on their history, we would grant them or not. (NOTE: Keep in mind, we didn't keep strict records of any of this, we just had a general sense of how the kids were doing since all the money was going through us.)
Investing in Their Future
From the beginning, we always wanted to give the kids a reward for saving their money. We wanted to do it through interest, but we didn't have the time or math skills to figure out interest at the end of each month. So we told the kids that whatever they still had saved in the bank at the end of 6 months, we'd give them 10% of it. So if they had $100, they would get $10.
When the kids were in their teens, we offered them an upgraded investing option, where they could take a portion of their money and hold it in the bank for a year (without being able to touch it), and at the end of the year, we would give them 50% of the money. One of my kids actually ended up doing this with $1,000 of his money during his junior year of high school, so we gave him $500 at the end of the year. Of course, we invested that $1,000 he gave us in a CD so we would both be making money off the investment.
Leaving the Nest
My kids are now out of the house; some are still in college, some have already graduated. Not all of them are frugal or even have any savings, but they all know the basics of money and are financially stable. Through loan research, investing and hard work, one was able to pay off his student loans only two years after he left school. Another one has no savings whatsoever, but she pays here entire credit card balance ever month. The best part, though, is that I never have to worry about my kids financially. I feel proud as a mother to have given them the skills they need to leave a financially stable life.