Raising four kids in the affluent suburbs of Washington, D.C., over a decade highlighted for my wife and me the fact that even our eldest child, in high school and at the age of 15, had far less understanding of the value of money and general personal finances than we did growing up in this very same area.
As a senior-level manager in the federal government, I also witnessed this knowledge and skill gap in the execution of life and work choices of many a new hire, young suburbanites, from the Gen-Y and millennial talent pools.
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Background on Our Children & Their Lives
Regarding my children in particular, their financial mindset was due, at least in part, to the very comfortable lives allowed by our secure jobs–they wanted for nothing–but contributing even more so was the pattern of consumerism around them, increasingly pushed down to younger and younger age groups, by other adults in their sphere of influence.
Relatives gave our kids the latest gadgets because a cousin had something similar (as if to prevent our child from some disadvantage in later life).
Our children’s friends’ parents lavished their kids with the latest model iPhones (I am talking about kids that had not reached double digits in age), relatives possessed multiple gaming systems (an Xbox or PS3 by itself was not enough).
Expensive outings were the norm for peers and entire peer groups ($30 for a movie and junk food…every weekend…at the age of 11..was the norm).
The Plan: Teaching Money Management to Our Kids
After several years of trying to improve the situation, my wife and I resigned ourselves to the fact that no manner and frequency of talking would work to set right our kids’ perception of the value of money, discerning quality products and enriching experiences, saving, and immediate gratification versus wise spending.
We decided to give the children ownership over money flow in their lives to “make it real” to “bring it home.”
We decided to give them a “salary”!
Yes, salary, not “allowance” and not tied to chores.
We put them in charge of all of their personal expenses, with the exception of staple foods, lodging, and birthday gifts for friends. (I must admit that the idea of charging rent based on bedroom square footage lingered in my mind until my wife slapped it out, and I still think it would have been an interesting, if not useful, twist).
We Put Our Kids on Salary
In executing this plan, we made a number of decisions and option choices that were specific to our family dynamics and our kids’ personalities and abilities, and I admit that these elements may not be best for every family or kid.
For instance, we decided to compensate the four kids loosely based on age.
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Our thinking on this front hinged on a few observable differences in need.
For instance, the eldest child, then in high school, arguably had a greater clothing requirement than, say, the seven-year-old, whose vast stash of hand-me-downs greatly reduced her need to buy clothes.
We created a three-tiered, weekly pay scale of $25, $15 and $5 and the kids’ “salaries” went up as they got older.
We Paid the Children with Cash
We made the decision to make all payments directly to the kids in cash.
Well, there were two main reason for this:
- This element served to make it very clear to each kid exactly how much they were getting
- and when they added it to their savings, they could readily see any increases.
Our older three kids had online banking privileges for their checking accounts. So we could have more easily moved money electronically to their accounts.
But we didn’t!
We were of a mindset that the digital numbers and electronic balances may not have the same effect as the feel and smell of hard currency passed hand-to-hand and manually counted or quickly spent, resulting in empty wallets.
This said, we did encourage the kids to do a few things, mainly:
- deposit most of their money into their checking accounts.
- keeping a small amount of petty cash in a wallet.
- and to use their debit cards when making most purchases at stores.
While there may have been merit, for the same reasons above, to have them pay in cash, we thought that kids’ tendency to lose things and society’s increasing reliance on non-currency based payment mechanisms made debit card use a prudent and useful element of the overall plan.
It also opened up a number of discussions on credit cards versus debit cards and when it was appropriate to use each. (We advocated only spending money that you have–i.e., use the debit card–and keep a credit card or two in reserve for emergency use only.)
What the Salary Did and Didn’t Cover
With all the components worked out to our satisfaction, the kids were then put on the hook for all of their own expenses except:
- staple foods
- school supplies,
- and birthday gifts for friends lest they mismanage funds and get miserly with their friends (that is a social lesson for another time).
The salary covered:
- entertainment expenses
- social outings
- additional gifts or treats purchased for someone else
How they allocated their salary to each category was at the discretion of each individual child.
The Lessons We Learned
As this grand experiment rolled out, we were pleasantly surprised to discover that we had underestimated the number of lessons to be learned by the kids and parents alike.
We were all in for quite an educational adventure.
1. Caveat Emptor
This lesson hit hard a few times before sinking in, but has left all of our kids focused to a much greater degree on product quality over flash and price.
In one instance, in an attempt at frugality, our son ordered a set of headphones online and focused very much on the price tag.
After trying out his new product, his regret over the purchase was visible on his face, especially when he realized that he would need to part with more money to cover the return postage of the item or just settle for an inferior product.
2. They Developed Buyer’s Remorse
After a few bouts with this one, we saw our kids becoming more careful about whether they really needed–or just wanted–an item.
They began to discuss purchases with us and each other before making a buy.
They began to favor practicality over bling.
For example, after saving up enough funds to buy an iPhone, our oldest daughter began obsessing over cases; she spent hours researching the perfect color, the right design, the popularity.
Only days after receiving her non-returnable prize in the mail, she began to second guess the purchase, questioned her decision to spend so much on a protective device, and debated if the pattern and color were really the perfect fit after all.
Ultimately, she decided to buy another cover and try to recoup her losses by selling the first case on Craig’s List.
After weeks of no customer interest, she donated the case to Salvation Army, wrote off the loss, and promised herself to be more prudent with future purchases.
3. Their (Money) Value System Shifted
In what was probably the most comical lesson for me and my wife to see unfold, soon after launching our new financial program, the kids quickly changed their clothes shopping preference from high-end retail shops in the nearby glitzy mall to stand-alone discount clothing shops when they realized they could spend less on outfits (freeing up funds for other desired items and activities) and still come away with decent quality, if less trendy, clothes.
In some areas, movie entertainment for instance, values other than frugality prevailed.
While we offered to spring for food and drinks if the kids would invite friends to the house and watch a $1.00 vending machine movie, they always chose to spend more of their own funds to get away from the parents with friends and go to the much costlier cinema.
Another value shift occurred in the form of gift preferences. When asked by relatives about what gifts they would like for various occasions, cash quickly replaced specific items as their top pick.
4. They Have Different Learning Levels
As the parents, we quickly learned that not all of the kids were picking up on their mistakes–and those of their siblings–to adjust their money habits, or that they had very different timelines or priorities when it came to learning in this arena.
One child quickly amassed enough money to purchase her own high-end tablet, while another (only one school grade of difference between them) allocated a sizable portion of her funds to music downloads, buttons with rock band names, and even stuffed animals.
One kid, after focusing on saving her money, began donating to charity, while a sibling invested in soon-to-be-lost throwing knives, electronic kit components, and smoothies at the mall.
On one occasion during a growth spurt, one of the frivolous spenders did not have enough money to buy a much needed new pair of jeans (their “high waters” nearly sparked a new fashion trend at school).
They are all different…
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Occasionally, we would stumble across conversations in which one kid was scolding the other for spending patterns, or there was talk of who had saved more or made the smartest purchases.
5. They Became Financially Responsible
After a few misplaced wads of bills and wallets, the kids quickly learned to secure this increasingly important thing called “living-expense money.”
Requests for bank runs to make deposits became as frequent as requests for runs to the mall.
In a similar vein, the kids quickly learned that saving receipts could mean the difference between a happy exchange or return experience and something more difficult (store credit only or outright refusal to do anything).
6. They Became More Generous
As some of the kids became natural savers and others occasionally found themselves short on funds, an informal system of interest-free lending arose in the house.
The biggest learning point here was the concept of receipts, as no one seemed to be able to keep track of exactly how much was owed by any given child.
One high schooler lent money to a friend and learned the hard way that borrowers do not always repay. (Discussion of this incident around the dinner table made it, and other learning points, sink in among all the kids.)
Truth be told, mom and dad occasionally borrowed from the savers among the brood.
In a related vein, we also witnessed signs of “giving back,” in instances in which one or more of the kids would offer to cover the cost for a family outing–to get noodles, for instance–or chip in on birthday gifts for others.
7. They Developed a Sense of Entrepreneurship
Once the kids began to see what they could do with personal funds and discretionary spending authority, we saw growth in their interest in bringing in yet more money.
A number of discussions about entrepreneurship led to a few interesting, albeit short-lived, initiatives.
Our youngest, during a grocery run, purchased a box of high-end ice cream treats and, upon returning home, quickly sold off enough of them to her siblings to recoup her cost and pocket a small profit.
Our second eldest decided to ramp up her help with our beekeeping by managing her own hive and getting involved in the sale of honeycomb to a local farmer’s market, while our son–fascinated with culinary and medicinal herbs–made a few sales of his homegrown lemon balm at a community festival.
Two of our girls, with mom’s help, secured a food vendor license and tried their hand at selling homemade biscotti at the local farmers’ market.
One of the kids is currently mastering the art of homemade vinegar (from bananas) to try to sell as a vinaigrette component to fashionable restaurants in our area. (Beyond pure finances, these efforts also educated the kids on issues of business permitting, labeling and labeling laws, marketing, and direct customer sales.)
Also, when mom and dad, as part of a small family side business, decided to become distributors for an heirloom seed company, the four kids were invited to put up the needed capital as “investors” to get us started.
They voluntarily put in one-fourth each (some $105 apiece) for the start-up cost, with the promise that they would recoup their initial investment once sales put us in the black and then continue receiving (among the four of them) 50-percent of the profits until they decided to sell out their “share.” (The other fifty-percent goes into the family business bank account.)
Within one year, they all recouped their initial investment, began receiving 50-percent of the profits (split four ways), and began adamantly refusing to sell out their parts to mom and dad (or each other). (One asked $300 to buy out their portion, but the other siblings refused.)
Beyond some fledgling attempts at business, this new-found interest in income generation also led to job searches.
Our eldest has since secured certification and work as a life guard and part-time work at a restaurant, the second in line picked up a regular long-term daycare gig and previously locked in a good dog sitting job, and the boy has locked into regular work at two ranches.
In all cases, the majority of their earnings are going into their college savings accounts.
As the kids began to really value their money and understand issues of budgeting for necessities (clothing), we realized that–as in other parts of civil society–a system of fines could reduce undesirable behaviors.
Losing $5 for failure to stay on top of a chore, for talking back, or other misbehavior quickly became more serious than time out or privilege restriction.
Finally, I’ll note that along the way on this journey, we identified a number of additional facets of financial education that we could have employed, if we had the time and energy.
Investing, for example, is something we considered introducing (relatively safe, tangible instruments like bullion grade coins and treasury bills).
A greater emphasis on the socio-economic role and power (and personal satisfaction) of philanthropy may have been beneficial as well.
As noted above, one child was naturally inclined in this regard, but the others were resistant to the idea of giving away money, be it the church offering plate, the bell-ringing Salvation Army Santa, or other venues.
That said, we recently watched with pride as one of the typically stingier kids spent their own funds to put together a Christmas box for a child in the third world; maybe something was learned more broadly in this arena after all.
Guest Writer Bio: John Atwell and his wife of twenty years are currently working with their four homeschooled kids to establish an organic, sustainable homestead on the Big Island in Hawaii. You can read about their recent life adventure at sojournchronicle.tumblr.com.