Friday, October 16, 2009

Random Thoughts on Kids and Money

I readily admit to being a little too frugal at times (Mrs. Grindstone will point to my 58 degree setting on the programmable thermostat as an example).

In our society's effort to avoid all hard conversations, we shy away from money discussions at every turn. As the US enters this "new normal" period of less consumption and more saving it should offer plenty of opportunities to teach kids about money through words and actions.

1. Know how to use a credit card.
A credit card is like an car in my opinion. Use it wisely and it's a great tool to improve your efficiency. Drink a 12 pack and get behind the wheel and the car becomes a deadly weapon just like a credit card. A credit card is a vehicle to speed your payment, but if you don't have the cash to pay to balance at the end of the month you're shooting yourself in the foot. If you carry a balance and pay interest, you're never going to break free. Every time you whip out the credit card remind your kids that "This is a promise to pay. The bank pays the store and I promise to pay the bank at the end of the month."

2. Set-up a slush fund.
Emergencies happen. That's part of life, the bigger your slush fund, the better. The size of your slush fund needs to depend on your own personality. Some people need 3 months of cash to feel comfortable, some need a year's worth. Teach your kids to separate their money - savings/investments, expenses, slush fund, etc.

3 – Establish Routines.
The banksters are going to look for every opportunity to trip you up over the next couple of years. One area that may end up costing many undisciplined people is consistent bill paying. Sit down with your kids and show them how you write the checks (or e-pay) on the first and third Thursday of the month. This will help them understand the importance of routine bill paying and avoid hefty fees in the future.

Thankfully, Mrs. Grindstone has been a structured bill payer since she was in her teens. I've almost forgotten how to write a check :)

4 - Try Downsizing.
I recommend that everyone try downsizing one of their big bills if only for a few months. Would you really miss cable? Garbage pick up? That rarely used gym membership? That morning Vente Latte? The storage unit you haven't opened in 4 months?

Try to get your kids to purge their toys, especially before the holidays. It's a good exercise in downsizing.

5 - A car is a mode of transportation. Nothing more, nothing less.
Now, I'll admit to drooling over some cars, but kids need to hear it from you that your car does not define your family's status. A used Camry is sooo much more valuable to your bottom line than a leased BMW. Now if you are in a financial position to afford a luxury vehicle feel free to go down that road (I think there are plenty of values in the high end vehicle market), but too many kids graduate college with $80k in debt and rush right out and throw a $429/mth car payment on top of their debt. They'll never get off that treadmill.

Young people are very enamoured with luxury names - Mercedes, BMW, Lexus, but if I see some 25 year-old in a Lexus IS or a BMW 325 it screams "I'm sending HALF of my take home pay to BMW Credit Corp". However, a 53 year old in a 760Li or the new Porsche Panamera I think maybe that guy has a couple of nickels. Not all nameplates are the same.



The Hermit said...

Very true statements. We call it a budget. If the US gov can't balance theirs, at least we can.

Anonymous said...

We have to, the govt. can't, keep a "stash" of untaxed money, from yard sales, sales of cars, etc. etc.