Many self-employed parents have no idea that it’s absolutely legal—and a great tax move—to hire their own kids to work in their companies. Better yet, it’s a great way to help your kids develop a work ethic, teach them some basic work skills and encourage them to work for their spending money.
As kids’ year-end report cards start coming home, many parents are considering this question: “Is it a good idea to pay our kids for doing well at school?”
Dave Ramsey is an American financial author, radio host, television personality, and motivational speaker focused on encouraging good money management skills for all ages. But, he didn’t start out this way.
Dave made plenty of money when he was young, but poor money management decisions resulted in significant debt. As a result, he lost everything he saved and was embarrassed to ask for help. Dave was determined to figure out how money works and to better manage his situation. He read every book available, interviewed older wealthy individuals, and more. Ultimately, he realized that the world wasn’t out to get him. As it turns out, it was his own decisions that ruined him financially.
After moving back into real estate and bailing himself out of financial distress, Dave realized he wanted to help others with all the knowledge he had gained. He began Ramsey Solutions in 1992 to “counsel folks hurting from the results of financial stress.” Dave wrote several books on the subject and eventually started a radio call-in show that airs nationally.
As you can imagine, Dave has several tips for your kids to learn early. Check out just a few of these below!
Elementary School Age
- Use a clear jar for saving. There are a lot of piggy banks that are pretty cool looking! Try to find one that is also clear so your child can see their money growing. This should be a fun thing for you and your child to sit down and discuss. Watching three quarters turn into 8 quarters is a big deal! This will also encourage saving.
- Show them that stuff costs money. It’s one thing to have money and another to understand what it actually means. The next time you take your child to the store, have them bring some physical money with them from their piggy bank. When they find something they want to purchase, have them hand their money to the cashier. This will be far more meaningful than a simple lecture about money because they will visually witness the result.
- Teach them opportunity cost. Your kids need to learn that when they decide to purchase something, it generally means they can’t purchase something else. So, if they want to purchase a video game, show them that they won’t have enough money to pay for the new pair of shoes they want as well. Tradeoffs are critical, and can easily be taught in this manner.
- The importance of giving. Once your kids start making or saving money, take time to discuss the importance of giving to others in need. If they are passionate about animals for example, help them pick a shelter they can either give money or time to help out. Your kids will see that giving helps others, but that they will also feel good about it as well.
- Work for money. Your children will have a lot of free time during breaks, summers, and more. Helping them find a summer job at their local ice cream shop for example is a great way to show how working will provide them the additional money they seek.
- Teach them the danger of credit cards. As soon as your teen turns 18, they are going to want a credit card and will receive mail from banks trying to provide it to them with “attractive” promotions. Teach them why debt is dangerous and how to protect themselves.
These are just a few of the tips you can use to teach your kids how to manage their money. Its best to start as early as possible promoting positive money management skills because it will be a critical asset for your kids as they grow up.
First and foremost, when you’re shopping for back to school supplies, make sure you know what you have. Go through your kids’ rooms and take inventory of their clothing and any supplies they might have laying around. Clean out old backpacks and school bags. Take stock of supplies in your home office, in your kitchen drawers, in the hall closet. This way, you won’t continue to buy a protractor every year when you have a forgotten pile of them tucked away somewhere in your house.
Once you have a list of what you already have, you’ll be more focused on what you need. Using your inventory list, create a new list of items your kids absolutely need for the upcoming school year. Make copies of your finalized need list and give them to everyone in your family. If you and your family are tech-savvy, consider creating a shared google doc, or something of the like, so that you and your children can edit it together. This way, there should be no confusion on what’s been purchased and what you still need to buy.
Start buying early and plan your time
Planning ahead is really the best way to save money on back to school shopping. If you start looking at supplies and prices early, you’ll be better equipped to recognize and take advantage of the best sale prices.
Also, if you make a plan ahead of time, deciding which stores you and your kids will need to visit to get their supplies, you can track those stores easily by subscribing to their Facebook pages or Twitter feeds. Often, stores will post reminders of sales or even surprise offers to their subscribers. Following these stores early and often will help you get the most for your money.
Another benefit to starting your shopping early is the option of shopping online. Many times, you can find great deals shopping on Amazon, Overstock, even eBay or Craigslist. And, some stores offer online specific sales with better deals than you can find in store. So, don’t wait until the last week of summer to scramble and get your kids their supplies! Give yourself time to browse the internet too, and leave plenty of time for the great deals you find to be shipped to you.
Shop Tax Free Weekend and End of Summer Sales (but beware…)
Shopping on tax free weekend and during end of summer sales can be great ways to save money on back to school supplies. Parents should absolutely be aware of when tax free shopping occurs, and they should keep track of when their (and their kids’) favorite stores hold their end of summer sales.
However, it’s also a good idea to be critical of these seemingly fabulous sales. I worked at Old Navy throughout my high school and college years, so I have firsthand knowledge of some of the sneakier sides to summer sales. For example, sometimes stores will mark their prices up to full value during tax-free weekends, and other stores will actually run better sales before and after the big advertised “summer sale.” So be wary of the sales you see, and take the extra time to determine whether you’re getting the best deal. Don’t be fooled by the “tax-free” excitement of saving 7% on a shirt that costs $25 when it will be 50% off during next week’s less advertised sale.
Avoid unnecessaries and compromise with your kids
Fancy pencil pouches? Your kid has a backpack… that’s a pencil pouch right there. Cute, trendy, or graphic covered binders that cost 4x the amount of a regular, plain, binder? Who needs it? Chances are, your kid is going to either stuff some papers in there to keep for later, draw on it with markers or pens, or never take it out of his/her locker. Cutting down on the unnecessary items your kid wants but doesn’t need is a surefire way to save money.
But, if your son really wants the expensive backpack with a built in organizer, a hard-case pocket for his laptop, and a cool design on the front, compromise with him. If your daughter will not stop asking for the Vera Wang lunch bag she saw online the other day, compromise with her. Strike up a deal that they have to pay the difference between the backpack or lunch bag you want to buy for them and the one they want. They could cover this difference using saved up holiday money, allowance money, or by doing extra chores.
Be wary of teacher required lists
This last tip is a little variable, but here’s a secret from someone who’s taught high school for the past 5 years: Take our “required” school supply lists with a grain of salt. Again, this is the experience of just one teacher, but honestly, sometimes we don’t even know what our students will need for the entire year. My best advice is to buy the basics: pens, pencils, paper. Your child will always need something to write with and something to write on, but hold off on any excess- colored pencils, glue sticks, a binder for each class, rulers, etc.- until you know exactly what they’ll be using on a day-to-day basis
The way I see it, there are three main options for giving your kids an allowance.
Option One: Give them an automatic allowance. With automatic allowances, parents will usually set a standard amount of money for their kids to receive, weekly, bi-monthly, or monthly, and their child will receive that money no matter what (for the most part, of course).
Option Two: Don’t give your kids any allowance at all: self-explanatory.
Option Three: Have your kids earn an allowance. Many parents use this option and assign certain tasks or chores to their child, which upon completion, will result in a rewarded allowance. Of course, you’ll find pros and cons of any decision you make as a parent, including the decision about allowances. However, out of these three main options, I think there is a clear, front-runner that is beneficial for both parents and children.
Through the course of my life, and my more recent research and inquiries into this topic, I have been exposed to numerous variations of the allowance situation. Two stories stuck with me, though, as extreme, yet surprisingly realistic examples of the negative consequences of giving your kids an automated allowance or not giving them an allowance at all.
Extreme Scenario #1: The Jean-Ralphio and Mona-Lisa Saperstein Story
Parks and Recreation is a sit-com that recently went off the air in 2015. It follows the quirky and endearing Parks and Rec. department of Pawnee, Indiana through the trials, tribulations, and triumphs of life. While most of the characters are lovable and good-hearted people at their core, there are two characters, Mona-Lisa and Jean-Ralphio Saperstein, who should serve as a warning to any parent considering the automatic allowance option. Mona-Lisa and Jean-Ralphio come from a rich family, headed by a father who clearly does not regulate the money they receive. It is quite evident that, in their fictional lives, they’ve probably never heard the word “no” before as a response to any request, thus resulting in their annoying and outrageous request of “Money please!” This demand is made often, without remorse, and almost rarely without an affirmative answer from their father. They are so used to receiving money whenever they want, automatically and without any effort, that they perfectly illustrate an extreme consequence of giving your kids an automatic, no-strings-attached allowance.
While this is obviously an extreme example, taken from a fictional TV show, there is some real truth that lies at the core of Mona-Lisa and Jean-Ralphio’s roles. If you don’t require any effort from your children in order for them to receive their allowance, then what’s to stop them from taking it for granted? What lesson will they learn about how to get money? Will they turn out like Mon- Lisa and Jean-Ralphio, assuming that all they need to do in order to get money is sit around and wait for it, and then if it’s not enough, just whine until they get more? Do you, as a parent, really want to hear “Money please!” all the time, even after you’ve already given your child money? I don’t think so.
Extreme Scenario #2: No Allowance: The Story of Put-Back Pancakes
My aunt and uncle adhere to a much different philosophy than that of fictional father, Dr. Saperstein, from Parks and Rec. They didn’t believe in giving their kids an allowance at all. So, my cousin, let’s call him Jim, had to figure out another way to get money. As many teenagers do, Jim turned to the job force and got a part-time job as a carhop at Sonic. He worked at Sonic all 4 years of high school, and in this time, he learned to budget and save his money since he knew his parents weren’t going to be his main source of income. So far, so good, right?
In almost every way, my cousin is a perfect example of how not giving your kids an allowance is a good option. He learned the value of hard work. He didn’t bother his parents for money all the time. He had a good head on his shoulders and was able to understand the basic principle of saving money, which is advanced for a teenager. However, there are two things wrong with this story. Number one, my cousin is an anomaly. He represents a small population of teenagers who are stable and level-headed enough to make these responsible decisions, like finding and maintaining a job and saving the money he made at this job. Other teens may not be as dedicated as he was to earning and saving money during those carefree, teenage years.
The second thing wrong with my cousin’s story is the end. Jim managed to save more money during his high school years than I think most high schoolers could even comprehend. But, this resulted in him being extremely stingy with his money, to a fault. Perfect example: his honeymoon. After my cousin got married, he and his wife vacationed in Mexico for their honeymoon. One morning, at breakfast, Jim piled his plate high with food from the buffet, taking full advantage of an “all you can eat” meal. However, before he went to sit down to his feast, he was stopped by the cashier at the end of the line who told him that breakfast was not actually included in his room rate and that he’d need to shell out a rather hefty sum for his overloaded plate. My cousin, the too-money conscious man that he’d become, looked at the cashier, turned around, and dumped his food back in each, individual serving pan from which he’d taken it just minutes before.
The moral of Jim’s story is this: not giving your kids an allowance might be a good idea. They might find a job, work hard for their money, and learn valuable lessons about managing their own finances. Or, they might end up like my cousin, dumping pancakes and scrambled eggs back into hot plates in Mexico, effectively embarrassing himself and his new wife on what should’ve been a lovely honeymoon.
So, what do you do as a parent then? Ultimately, the decision is up to you and what you think is best for your family. However, considering the pros and cons of each side, setting up a system for your kids to earn their allowance seems like the best, least painful, and most beneficial way to go. By having to earn their allowance, kids will hopefully learn the lesson of working for what they get. Ideally, they’d value their money more because they had to work for it, thereby making them more conscious about spending and saving. And finally, the system of working for their money at home will mirror their future, independent lives when they have to work for their paychecks and balance their adult finances. Exposing your kids now to the realities of money management and working to earn their money is an invaluable experience, and you can easily start by implementing an earned allowance policy in your house today!
(photo courtesy © Carissa Rogers cc2.0)
Think back to when you were in high school. How did you spend the money you either earned or received from your parents? Chances are you spent it on some silly things. Like that shirt you wore just once, or the colossal burger you couldn’t possibly finish today. I’ve got news for you. Your kids are wasting money in the same ways we used to! But there is hope. You should help your children identify how they are wasting money and teach them how to make good choices. Here are the top five ways your kids are wasting money today.
Do you have a son or a daughter? This spending area will affect both. Clothing trends are going to vary each year and your kids will be exposed to them. Male or female, they are going to go through fads with clothing. Remember when Abercrombie & Fitch was all the rage? Not so much today as trends have changed. When your teenager says they don’t have anything to wear, this would be a great opportunity to break out the photo album and show them your “clothing purchase mistakes” of the past. That double popped polo collar probably wasn’t popular to begin with, but it will certainly give you and your teenager something to laugh about. If they insist on a particular style, encourage them to find a cheaper brand. Kids are highly affected by advertising, but can generally find the same type of clothing in a lesser known brand. By the way, your kids grow really fast. Unless you want to be in the business of hand-me-downs, this is another topic you can bring up with them.
Your kids are going to find themselves in a number of situations where they want to make an impulse purchase. Part of this can be attributed to peer pressure when they are out with friends and classmates. But, it’s also an important part about being a kid. Your kids need to learn when it is appropriate to make such a purchase. Teach your kids to communicate with you in these situations. Apps like Greenlight can help by providing a simple interface to not only communicate but authorize or decline those impulse purchases.
Gaming & Entertainment
When you grew up, there were board games, card games, and video game consoles like Nintendo. Kids these days have the same games, and a whole lot more. Your kids have smartphones, tablets, and computers to provide them even more entertainment. While video games have always been expensive, they have gone up in price with the expansion of online gaming and additional purchases that enhance the experience. Now that games can be played online, your kids are going to want the next new game and console to play with their friends. Of course these games and consoles are coming out faster than ever before.
Speaking of big changes, your kids have a lot of opportunities to make purchases faster and easier than ever before. Amazon, mobile apps, iTunes, and other services have simplified the process to make purchases. While this adds convenience, it is also one of the areas kids waste a lot of money. While some purchases are mistakes, most are legitimate, whether it was a good idea or not. This can be scary because your kids may not be thinking about how much money they are spending when purchases are so simple. Restricting your kids from these types of purchases or reviewing them ahead of time will go a long way to ensure they don’t waste their money.
Fast Food & More
Your kids are going to eat…a lot. Unfortunately, they won’t just eat healthy food either. They will spend a lot of money on fast food like McDonalds, coffee from Starbucks, and chips from vending machines. These purchases add up quickly and can be one of the largest hidden expenses to your kids. While your kids may not see a problem with spending money in this category, they should be aware of how much they are spending. Make a plan with your kids regarding how often they can eat out and how much they should be spending.
Parents, picture this:
You’re cleaning house. You know you’ve told your teenager a thousand times to clean his room. At the very least, you hope he has put the painstakingly folded laundry away in the dresser. But, as you look into his room, you see clothes everywhere. Instead of fighting this battle for the 50th time, you give in. You pull out the top dresser drawer, a handful of socks poised and ready to finally be back where they belong, but you stop short. There is cash everywhere. Ones, fives, tens, and twenties fill the spaces in between your teenager’s mismatched socks. What’s your first thought?
Of course, your mind goes directly to the worst case scenario, speeding straight past rationality. Where did all this money come from? Is my child involved with drugs? Is he stealing? Is he part of a band of teenage bank robbers who have somehow evaded the attention of both police officers and parents?
What if the answer isn’t as sinister as you think? What if, instead, a drawer full of cash is cause for concern of a different kind? In this moment of surprise and panic, you don’t remember that your teenager has a job, gets an allowance, and often receives birthday cash from distant relatives. So, what if a drawer full of cash is actually a small, yet significant sign that your child needs help managing his money?
When I was in high school, I did not have a drawer full of loose cash. Instead, I had a manila envelope stuffed between some books on the nightstand by my bed, full of money. No, I was not involved in selling drugs. I’ve never stolen money from anyone, and I was not busy robbing banks with my friends after school let out. I was, in fact, quite the opposite. Smart in nearly every facet of my life, I seemed to be one of the good kids who had it all figured out, and I loved that people thought of me that way. So I worked hard to maintain my status as a good, responsible teenager. I made great grades, had a steady, part-time job, excelled as a student athlete, and maintained a solid relationship with my family. But I was an absolute idiot when it came to managing my money. When I started working at my first part-time job, my mom would help me cash my checks, and then she trusted me to handle the cash responsibly. But I didn’t have the slightest idea what that meant, and I was too ashamed to ask her for guidance. I didn’t want to tarnish anyone’s opinion of me, least of all my mother’s. If she trusted me enough to manage my money, then shouldn’t I be able to manage it?
Enter, manila envelope. I knew I needed somewhere to physically keep all my money, and since I did not yet have a bank account, I figured I should keep it somewhere relatively safe. Thankfully, our house was never broken into during this time, or else I’m pretty sure a bulky manila envelope, awkwardly shoved by some books on a nightstand screams: I CONTAIN LOTS OF UNGUARDED CASH!
It seems rather obvious how this story should end, right? Eventually, one way or another, I would figure out how to get a bank account, deposit all my money there, and be well on my way to living a financially healthy life. Sounds perfect, right? Well, it also sounds idealistic and untrue. Yes, I did end up getting a bank account, and my money was tucked safely away in a vault. But I was still the same stubborn person, still too concerned about how others viewed me to risk asking questions about my money.
Unfortunately, my teenage ignorance lead to a young adulthood filled with multiple instances of blindly hoping that my debit card or credit card wouldn’t get declined because I was always too nervous to actually look at my bank account and try to balance my money. I have been guilty of simply deleting emails from my bank and throwing away correspondence, unless it looked too important to risk it, all because I was uninformed. I didn’t know what I would do if there was a problem with my account. I didn’t want to think about how to find more money to augment a low balance. I had no clue how to actually establish and grow a saving’s account. So I ignored everything and hoped for the best.
Parents and teenagers alike, I urge you, please do not let this happen to you! It took me entirely too long to understand my own finances, and my lack of knowledge was a true detriment to me because it has required me to spend the last few years playing catch up and educating myself, instead of saving and spending wisely.
The task at hand is quite simple: talk to each other. Parents, if you find a drawer of cash, or a manila envelope, don’t automatically assume that your child has gone rogue and gotten into a messy, illegal situation. Likewise, don’t assume that your teenager knows how to be financially responsible just because he’s a great kid in all other areas of life. Leaving something this important up to assumptions and chance could condemn your teen to a lifetime of money troubles.
And teens, please don’t be afraid to talk to your parents! Take it from someone who tried so hard to be good at everything, and in doing so, totally failed at being good with money. Knowing how to actually manage and use your money is going to make your life so much less stressful and so much more enjoyable. So just ask. I promise, it’ll only help.
(photo courtesy © Pictures of Money cc2.0)