Teaching Kids Financial Responsibility

In todays world of “plastic purchases,” many kids are growing up with little understanding of the financial realities of life. As parents, our paychecks are directly deposited into our accounts, we pay bills online, and use credit or debit cards to make purchases.

While these methods are certainly convenient, they may be robbing our children of the valuable lessons they will carry into adulthood. What can we do today, to teach our children the value of money? What tools and experiences will they need to become fiscally responsible adults? Most importantly, how do we get started?

There are many ways to teach your kids about money. One place to start is with an allowance. By giving your children an allowance, you are beginning an important conversation that will hopefully continue through to adulthood. It also gives you and your spouse an opportunity to evaluate your own financial habits and goals, changing any bad habits that you may be struggling with.

When determining an allowance, it is necessary to first decide what you are trying to teach your kids. For younger kids, it is a good idea to teach the basics of saving. A young child may be given 10 dimes each week. This makes it easy for her to understand the concepts of saving. One basic breakdown is 10% to long term savings (like a college fund,) 20% to savings (for a special toy, etc.) and 70% to spend.

Use three different jars, each week putting one dime in the college fund, two dimes into savings, leaving seven dimes to spend. The concept is that this equation for saving will become a lifelong habit, continuing as the allowance increases.

When teaching older kids to budget, give them an amount that can cover their needs, but will still require them to make decisions about their purchases. Decide together what purchases they will be responsible to pay for with their money. This is the time to establish expectations.

You may also teach basic budgeting skills to make sure that they understand that the money has to last the whole week, month, or “pay period.” A few failures may help to reinforce these lessons, and ensure success later on.

In high school, encourage your child to seek employment, and become even more financially independent. Hopefully, by now your child has established good financial habits. Now is the time to open up their own bank account with a debit card, and a separate savings account. Giving children the opportunity to succeed or fail with a debt card while still at home, can help to prepare them for financial success when they leave home to begin college or their career.


Living Debt Free

The concept of debt free living is an easy one. Earn more than you spend and don’t allow yourself to live beyond your means. This is much easier to understand than it is to apply however.

As a nation, we’ve seen our national deficit grow into the trillions of dollars. In towns and cities across America, people find themselves heavily indebted for homes, automobiles, education, credit card debt, and many other things.

It’s safe to say that anyone burdened with cumbersome debt would like to find a way to live debt free. The only way to live debt free is to embark on a path that will lead to paying off your obligations. Everyone with this desire will find themselves at a different starting point, although the finish line is the same for everyone: a life where we spend less than we earn.

The first step to debt free living is analysis. A borrower must understand the depth of their debt problem before they can hope to eliminate it. A simple cash flow analysis is the best way to start; making a list of your monthly obligations and comparing it to your monthly income.

For many people, there is a shortfall that is creating the debt problem – if you need to get out of a hole you’re in, the first step is to stop digging. Finding a second job or changing your career to increase your income might be necessary. Trimming the excesses from your budget is important as well. Are there things you’re paying for that you can do without?

The second step is to implement your plan. Determine how much income is available to pay down debts after your monthly expenses are met. Get rid of your credit cards so you aren’t tempted to use them and throw your debt reduction plan off-track. If you need to consolidate your debts or negotiate with creditors, find a trustworthy credit counselor who can help. Be vigilant in tracking your budget and set goals for yourself to hit certain milestones in paying off your debt. The feeling of paying off that one credit card with the highest interest rate will motivate you to keep going in the right direction.

The final step is to monitor your plan and stay on target. If you establish realistic goals and get organized, you’ll know exactly how long it will take you to get out from under your debt. Work every month to reach your goals and find a way to reward yourself when you achieve positive outcomes. Look for opportunities to increase your income or reduce your expenses along the way. Track your progress on a monthly basis to ensure success.

Debt free living is a challenge for everyone, but it’s the only place where true financial freedom is found. It’s a process that usually can’t happen overnight, but the habits you develop in achieving your goals and living debt free will allow you not only freedom today, but the capacity to save for tomorrow.


So You’re Out of Debt…Now What?

Congratulations! You’ve succeeded in paying down your debt, and are ready to begin a new life with financial freedom, and fiscal responsibility. Unfortunately, your journey has just begun. For some, debt can be a revolving door, and it is tough to stick to your new spending habits, once you’ve managed to put out the fire. Financial expert Jean Chatzky gives us some tips to guarantee financial success for life.

Keep on keepin’ on. Don’t let up on the great habits you’ve formed while paying down your debt. Continue to track spending, taking note of any dangerous patterns that you see creeping back in. Be accountable for every purchase.

Automate your savings by having money directly deposited into savings accounts, and 401Ks. By saving automatically, you’ll find that you don’t even miss the money.

Avoid temptation. If shopping is your weakness, limit the time you spend at the mall. If you are tempted to stop at the drive-through window rather than cooking dinner, keep your purse in the trunk. Forcing yourself to get out of the car to access your money, gives you time to rethink the purchase.

Simplify! Use computer based budgeting programs rather than spending hours balancing your check book. Keep it simple and do what works for you.

Build a safety net. Be prepared for emergencies, and the occasional overspending. This way, one car repair or trip to the doctor’s office doesn’t completely undo all your hard work. Additionally, when you do give in to temptation, (and you WILL give in to temptation), if you have “planned to fail,” you won’t succumb to guilt, and can quickly correct and get back on track.

Unfortunately, eliminating debt is not a one-time quick fix. It is a life long process requiring real dedication and discipline. For those who can change their habits, peace, and financial prosperity are the reward.


Don’t Cut Up That Credit Card

You’ve probably heard the advice to cut up all your credit cards as a way to help you overcome the temptation to spend more money on them.

If you’re dealing with more debt than you can handle, this might seem like a good idea.

But if you’re thinking about forcing yourself to go cash only by getting rid of those cards, there’s something you should consider.

What happens if there’s an emergency and you need to pay for something that you haven’t got enough cash on hand for?

Let’s say you need some major repairs to your house or your car, for example. If all your credit cards are cut up, how would you pay for it?

It’s a good idea to keep one credit card in one piece in case something like this comes up.

And if you’re thinking of canceling your credit cards, the same advice applies.

But how do you stop yourself from using it when the temptation strikes?

It sounds a little crazy but one of the best ways I found to stop myself from pulling the card out back in my overspending, debt-ridden days was to put the credit card in a can, fill it with water and put it in the freezer.

When the card is frozen inside a block of ice, it takes a bit of work to get it out. If you need it for something important, it can be done (unlike trying to piece together a cut-up card) but if you’re thinking about buying that latest gadget or the thing you just saw on the shopping channel, it’s enough work that you probably aren’t going to do it.


Time to Examine The Way You Spend

It takes time for most people to get into debt. It takes months or years to rack up credit cards and get behind in payments. The thing to keep in mind is to learn to manage your spending before it gets out of control in the first place.

You’ll need to take an honest look at your spending habits. We are all either spenders or savers. Most people have distinct characteristics of either type.

If you observe a spender, you’ll see that they love to buy things, often at their first impression, or on impulse. They don’t allow themselves time to think about a purchase before making it, and often they could have done without the purchase. Spenders don’t think about the future, and live for today. They typically aren’t interesting in saving.

If you observe savers, you will see many are opposite. They think about the future, more often than the present. They tend to sacrifice. They cut out enjoyments so they can save. Sadly, they may sacrifice so much that they don’t enjoy life, and often don’t make it to the point they’ve been saving for.

It is best to try to achieve a balance between the spender and the saver. Yes, it is important to think about the future, but it is also important to not deny us in the present. Don’t get in the habit of obsessing to the point that you only think of the future.

Start by looking at all your expenditures from the last month. Look at all your receipts, bank and credit card statements. Look at what you are spending at the ATM. The ATM is typically where you will blindly use the most money.

The best way to track your money is through a budget. Know how much you have to spend in every area, and stick with it. After working with the budget for awhile, you will be able to adapt it as necessary. Don’t make your budget too hard to follow. Likewise, don’t give yourself too many opportunities to overspend.

Do you feel you need something new for your wardrobe? Look through your clothing – you may still have some clothing that is suitable and still fits and looks good. Avoid “window shopping” at the mall, as it is too tempting of you see sales, etc.

If you find you overspend with debit cards or at ATM’s, trying carrying small amounts of cash only. Once a week, make a withdrawal for necessities- gas, groceries, entertainment. When you run out of money, that is all you have, no more. By writing checks for bills, it encourages you to track them, which is beneficial. Cash is by far the best way to track your spending. Keep your receipts until the end of the month, then add them up.

By making the time to see where your money goes, you are likely to help curb your spending habits. Try as much as you can to spend less and save more each month. If there is something you really want, hold off a month or two and see if you still want them when you have saved up the money to purchase them.