Tuesday, September 26, 2006

Developing Healthy Money Management Habits with Kids - Our Plan for Matthew and Jacob

Julie and I launched a new program for the boys last night – it will officially kick in on Oct 1, but they got the program last night over dinner and seem to be pretty excited about the plan. This is adapted from some of the teachings of personal finance guru Dave Ramsey, who has been instrumental in guiding our philosophy about money management and debt avoidance. I took the $ amounts out, so if you want to adopt something similar just substitute in what you think is appropriate based on your situation.

I especially like the fact that the boys are already talking about some savings goals and what they would like to buy with their own money (with cold hard cash).

The Goal

To develop healthy money management habits, learn how to save for the future, pay cash for purchases, and how to earn money for needs and wants without borrowing money.

The Basics

Jacob and Matthew will earn $x per month in base salary, payable on the 1^st and 15^th of each month. This base salary is for the core set of responsibilities that both boys have as part of our family:

· Making your bed each morning after you wake up

· Setting and clearing the table at meals

· Taking care of food and water for pets

· Keep room and game room straightened up (CDs away, etc.)

· Keep bathroom in decent condition (wiped, straightened, etc.)

· Miscellaneous odd jobs as requested by mom & dad

Commission Earning

In addition to the base salary, Jacob and Matthew can earn extra money by taking on extra jobs that earn commissions (“fees for services rendered”) according to the following commission schedule:

Job	Commission	Job	Commission
Cook a meal (main + side dish)	$	Vacuum downstairs or upstairs	$
Do 1 load of laundry	$	Cleanup after dinner (everything!)	$
Mow Lawn	$ / side	Clean the litter box up to 4x / week	$
Gardening work for 20 minutes	$	Sweep out front & garage	$
Clean bathroom (toilet, sink, etc.)	$

Savings and Giving Expectations

Jacob and Matthew are expected to set aside some of their salary and commission so that they can give to those in need and save for items that they want to buy with cash.

Giving

Jacob and Matthew will set aside at least 10% of their salary + commission for giving. They will each decide on a charity to give the money to on a quarterly basis.

Saving To Buy With Cash

Jacob and Matthew will set aside at least 10% of their salary + commission for savings. As an incentive to save, mom and dad will match up to $x each month of the money set aside by the boys for savings. The only catch is this: the savings + match must remain in savings for at least 90 days after saving or the match will be forfeit. This is an incentive to save for long-term wishes and delay gratification.

Personal

posted on Tuesday, September 26, 2006 12:40:02 PM (Pacific Daylight Time, UTC-07:00)

Tuesday, September 26, 2006 2:12:25 PM (Pacific Daylight Time, UTC-07:00)

Chris,

I applaud the idea, and it's probably a good one. I will add only a few contrary opinions for you to consider:

You and your wife don't get salaries for doing household chores. You do them because you take responsibility for the house.

Forging a relationship between chores and income may lead to some problems. Your kids may say "I won't do that unless you give me more money." Or "this isn't worth doing unless I get paid." Or even, "I don't need any money, so I'm not going to do any chores."

Ultimately, all members of a house need to take responsibility for the house because it is theirs to do so.

Money as an encouragement teaches some valuable lessons, but possibly, ultimately at the expense of some incorrect lessons.

When it comes down to it, children are simply incapable of going out to work yet, but, as members of the household, should not be discriminated against on that basis - that is why they are entitled to some of the income of those who can work. Separately from this, they must do what chores they are capable of, simply because they are part of that same household.

Yehuda

Yehuda Berlinger | shadejonAT NOSPAMgmail dot com

Tuesday, September 26, 2006 2:39:08 PM (Pacific Daylight Time, UTC-07:00)

I do particularly like the ideas on giving/savings and think all of that is very important to teach kids.

I somewhat like 1st commenter dislike giving money for chores as such, especially the "commission" section. That said, I'm not sure I have a better suggestion and I think it is very important to provide some sort of allowance and discretionary income.

Erik Oliver | erikAT NOSPAMvaldemar dot net

Friday, September 29, 2006 5:40:25 PM (Pacific Daylight Time, UTC-07:00)

Yehuda, you bring up valid points that Julie and I considered and discussed in depth. Historically, we've given the boys an allowance plus maintained a set of core expectations as family members: making their beds, cleaning up after themselves, and helping out as asked around the house.

In this new model, we are calling "allowance" a "base salary" to communicate that this isn't optional... these are expectations and you can't opt out of the base salary. We also decreased the salary from their base allowance.

Julie and I feel strongly that beyond the basic "clean up after yourself" tasks that our boys have priorities that are higher than other house and yardwork. Our boys play sports most of the year (football consumes 10-14 hours per week from August through November), are in scouts, are on the chess team, and participate in a number of other miscelaneous activities that come up from time to time (Lego Robotics, choir, spelling bees, etc.). We place school, homework, sports, and these other activities above housework like you see in the commission list.

That said, we've always encouraged the kids to do more than the base that you see with mixed results. Mowing the lawn isn't tough to convince them to do, but cleaning bathrooms is harder. Of course we can make them do it, but we opted for the carrot model vs. the stick. We also want to teach a life lesson, which is this: your earning potential is often linked to how hard you want to work. This is only part of the overall plan though. The primary lessons we want to teach are the lessons around giving, saving, and delaying gratification by planning for purchases. Oh, and that matching savings are an amazing way to increase your savings growth rate.

We think the base salary + commission model resolves some of these forces by ensuring that they know that they must do certain things, but that by going above and beyond they will be rewarded.

Chris Brooks | brooksclAT NOSPAMcomputer dot org

Sunday, October 01, 2006 3:15:13 PM (Pacific Daylight Time, UTC-07:00)

I think that's an awesome plan. I think the caveat and concerns are well-founded, and your responses to them are quite valid. I wish my parents had done something similar for me! Let us know how it works out down the road.

Joe Casadonte | jcasadonteAT NOSPAMnorthbound-train dot com

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