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Teach Children Good Financial Habits Early

Allowances and part time job income can be used for learning

Dear Dr. Fournier:

My son has an after school part-time job.  My husband and I are debating how to approach the subject of his making a contribution to the family for his monthly expense total. We discussed it briefly and my son was angry at the prospect of having to turn over part of his income to us.  Since he didn't have to pay anything when he wasn't working, he feels like we are punishing him for working.  What can we do to handle this?

Michelle T.

Birmingham, AL

Dear Michelle,

The freedom that a teenager gains with disposable income can be a tricky situation to handle, perhaps more so if he is accustomed to having things provided for him without being expected to return the love that has been given to him with acts of love that are his own.  However, for a loving and caring relationship to exist, both parties need to promote growth and development through their actions.  Of course this is an understanding that needs to be nurtured in the child, but I propose that this is the chief responsibility of a parent.

Parents are often taken aback when I tell them that I teach that children should be expected to love them in return. These parents assume that giving is a one-way street when it comes to raising a child:  The parent loves the child; therefore they give without any expectation of a return.  It is my belief that a parent's primary objective is to teach a child how to love so that they will be able to "pay it forward" once they are out from under the family roof and are in position to build an independent life for themselves with a spouse and eventually children.  This idea will take different forms depending on the area of development in question, but for financial growth and development, there is a basic reality that parents can use as a teaching tool, and that is simply the child's daily cost of living.

This is necessary when it comes time for the teen to understand the difference between income and disposable income.  Many teens with cars of their own are under the assumption that if they pay for their own gas and yearly car maintenance, then that is the extent of what they are responsible for.  It follows for them that the rest of their income from part time jobs is disposable.  I do not recommend that this concept stop here.

When it comes to finances, the parent's teachings are critical, since the habits that the child forms early on regarding money will most likely stick with him or her for better of for worse.  If the parents have instilled good habits when it comes to finances, the child will be in position to stay away from trouble, needless debt, and spending habits that are responsible.  On the other hand, if the proper lessons are not learned before the child leaves the home for work or college, then the parents should not be surprised when the child calls home in need of money.  The younger we start them with this understanding, the better.

WHAT TO DO:

Explain to your son that this is a part of real-world education, not a shakedown or a punishment.  Many parents do not educate their children sufficiently about the realities of finances and budgets, which can unfortunately lead to mountains of debt, poor credit, poor spending habits and the like, which can financially ruin a person almost immediately for a long time.  Once you have communicated the reasoning for this practice to him, let's get down to the nuts and bolts of what to do.

Instruct your son about budgets and limits.  Family wealth advisors have pointed out that financially sheltered children who are sent off on their own to college will be calling for more money around April.  One solution in preteen years is to give your child(ren) larger allowances rather than small ones, and having them pay for things like clothes and transportation.  This will teach them some personal lessons about tradeoffs and buyer's remorse.[i]

For your son (and older teens), find the sum of the expenses that the family has for each month.  Once this is finished, figure out what your son's share of this total is, and share it with him.  This should include cell phone service, transportation, food, clothing, utilities, and any other relevant expenses.  Now look at his income, and come up with a reasonable amount that he will pay per month for his share of the family expenses.  The extra will indeed be his disposable income.  Even if he costs more than his income will pay, which in many cases will be the case, he can compare the two numbers to see how much he lacks on his way to financial independence.  Until that time, he is in position to learn about prioritizing the necessities first, and "fun money" second.

Have a question about education, education-related issues or your child’s schoolwork or homework? Ask Dr. Fournier and look for her answer in this column. E-mail your question or comment to Dr. Yvonne Fournier at [email protected]

http://www.forbes.com/forbes/2011/0627/money-guide-11-kotlikoff-roth-ira-mutual-fund-kid-millionaire_4.html

More Stories By Dr. Yvonne Fournier

Dr. Yvonne Fournier is Founder and President of Fournier Learning Strategies. Her column, "Hassle-Free Homework" was published by the Scripps Howard News Service for 20 years. She has been a pharmacist, public health administrator, demographer and entrepreneur. Dr. Fournier, arguably one of the most prolific of educators and child advocates in America today, has followed her own roadmap, calling not just for change or improvement in education but for an entirely new model.

She remains one of the most controversial opponents of the current education system in America.