Mike’s Money Minute
One of my recent parenting challenges involved talking to my oldest child about saving money, especially for his immediate needs. For all that our public schools teach us, basic, real-world finance isn’t on the list. That was true for me, and was still true for my son as he ended his high school career. Let’s face it, budgeting isn’t something we as Americans do very well; even Former President Obama’s first 2 budgets were voted against…unanimously!
In a large family, it is especially important for us to do a good job of instilling the importance and value of a simple budget (and living within our means) in our children. Unfortunately for the older kids, we simply don’t have the resources right now that we will (hopefully) have when Number 7 is ready to enroll in college.
Saving for More Immediate Needs
Chances are the first financial advice you received as a child was to learn how to save. In fact, many financial experts will tell you that having at least 6 months’ worth of paychecks in savings should be your first goal. I’m not disagreeing with that age-old strategy, but it isn’t as easy as it sounds. Sometimes there are more immediate needs that can be achieved faster, such as deductibles (the concept of insurance doesn’t work without it). As a teenager-to-twenty something with familial support, a “nest egg” isn’t as important as transportation to school or work.
The first lesson in finance I taught my oldest child wasn’t the Art of Savings, it was budgeting. More specifically, the act of watching where your money is going, before telling it where to go. At around the age of 16, I wanted him to get used to monitoring his spending and get him used to making his own judgments about whether he spent it well or not. This was before he had any reoccurring bills or deductible needs, so time was a luxury he could afford. I told him it didn’t matter to me where he spent his money, as long as he knew where it was going.
Spent too much eating out last month? That’s ok, just write it down.
Buy something expensive on a whim? Doesn’t matter, just make a note of it.
You get the idea. In no time at all he had a pretty good handle on this. These days we have the option to use a brick & mortar credit union for checking needs and ease of access, but online banking for savings to take advantage of their higher interest rates.
Practical Savings Goals
This is where the 6x your salary rule just doesn’t fit universally in my opinion. Instead, I wanted to teach him how to identify his more immediate needs. As a teenager, he was working part time, making minimum wage (around $4K annually). With minimal bills $2K isn’t too difficult to achieve, but he had a disadvantage… he was paying for college on his own. He has since offset his part time job with a non-paying internship that makes it even harder. While the part time job is paying the bills, the internship is setting him up for his future. Having any savings at all is a challenge for him, much less half of his check!
Once he started driving, things changed. We made him pay for his own car insurance, and part of that responsibility was the deductible. If you’ve ever been faulted for an accident, but didn’t have the money to pay your deductible then you know why this is so important.
At the bottom of his monthly, written budget he wrote a list of Savings Goals. The top of that list was ‘Deductibles’. His deductible at the time was $500, so he needed to start putting money aside to reach this goal. Once he had $500 saved up, he transferred it to a savings account that was not attached to his checking. Moving your Savings Goals to an account not attached to your checking will keep that money safe from life’s “accidents” (aka Insufficient Funds Charges).
After ‘deductibles’, he could work on the next item on his list. And so on…
Now, as young adult who is almost finished with college, he writes a monthly budget (at least that’s what he tells me). He has his immediate savings in order, and is paying his own way through college – without student loans. While saving towards his “nest egg” still isn’t something he can do regularly, he and I are confident that the path he’s on will get him there soon enough.
If you have a pre-teen, or an older teen that hasn’t started with budgeting yet, take a few minutes to get them started on a better financial path.
Have your teen dedicate a notebook to their budget.
Every time they make money have them write the amount in this notebook. Also have them write down how they spend that money. Now, this isn’t Accounting 101 so make sure they know they don’t have to be perfect. Just a rough idea of what they spent and how. It’s a difficult habit to start so you’ll have to encourage them regularly. REGULARLY (if they’re anything like my kids). Like any plant though, all you can do is plant and nurture the idea until it grows and blooms.
Help your teen make savings plans, once they have the hang of utilizing their notebook.
Short and long term are both fine, along with serious and fun as well. Help them prioritize those (beginning with immediate needs, of course), and setup some accounts that will fit into their lifestyle. Remember, you’re the adult with the experience…share that with them. Building these habits together might be more important than the habits themselves. Show them that financial security is important to you, and it will have a better chance of becoming important to your teen.
This is the first article from Dad-of-Seven as a guest blogger.