Kids & Financial Organization
by Julie Kletzman
So now your budding Donald Trumps have been keeping track of the comings and goings of their money for an entire month. The very first thing to do, no kidding, is to reward them for being so diligent. Some kids may take to this like ducks to water, but most will lose sight of the purpose at some point in the first week. I don't want to overstate the case, but by merely keeping track of their money every day for an entire month, your child has learned some valuable lessons that extend way beyond money. This exercise requires patience, determination and a willingness to work for a distant goal. Be proud of them and let them know it.
The second thing to do is to organize it. All of this information doesn't amount to a hill of beans if you don't put it in a logical, meaningful order. You'll need to divide all of the entries into various categories. The incoming money categories are relatively straightforward. They will include categories like allowance, job/business income, and gift money. If your child earns interest from a savings account, don't forget to include that category. I would not include any money he earns from investments you are making for him as part of saving for college because that money isn't really in his control and doesn't affect his day-to-day life.
The spending categories won't be quite as easy. If you've done this exercise yourself, you may have broad categories like "food," "housing," or "transportation." As your kids don't spend as much money as you do (at least I hope not!), such broad categories won't really work for them. "Food" may need to be broken down into "food at school" "food on the weekends" and "food after school." You'll get a better idea of how to categorize your child's entries simply by looking over the entries themselves.
Once every entry has found its home, review the list together. Your child may well be surprised to find out where his money is really going. This is a great opportunity for you to talk with your child not just about money, but about his values. Start by asking open questions such as "does anything look out of whack to you?" and then sit back and listen. You may think it foolish to spend $100 a month on cd's, but if music is a passion for him, it is money well spent. Your purpose here, especially with teenagers, is to guide your kids into spending their money in ways that reflect their values, while also taking care of their basic needs. You will really get to know your older children by having this discussion. You may make subtle suggestions if you see a category that doesn't look right. You can also suggest ways to cut back in certain areas if a particular category looks overused based on your child's needs and priorities. If there is a disparity between incoming and outgoing funds, you will have to discuss how to handle it. It may mean your child has to make some serious cutbacks or that you will need to increase his allowance or a little of both.
Finally, it is time to set up the spending plan. Make it a plan for several months based on the categories you've just set up. Be sure to include categories that didn't appear during this exercise, but which you know will appear in the next few months, such as birthday gifts, class trips or organization dues. Do not forget to include long-term savings, short-term savings and charity as we have discussed in previous columns and on my web site. Based on what you have seen, you may want to adjust your child's allowance, encourage him to find other sources of income, find ways to cut back on his spending or increase the number of items for which he is responsible. While I would encourage you to make these adjustments, I would also encourage you to move slowly. You can't expect your child who eats at McDonald's every day after school with his friends to suddenly give up his daily Big Macs. As my mother often says, "move ever forward ever slowly."
Ms. Kletzman is a former family law attorney who is now a financial writer. She also has a web site that teaches parents how to teach their children good money management skills. You can sign up for her free, bi-weekly e-newsletter by sending a blank e-mail to firstname.lastname@example.org or by going to her web site. Ms. Kletzman is the author of two money saving tip books entitled 101 Ways to Improve Your Bottom Line and 80 Ways for Kids to Improve Their Bottom Lines, both of which are available on her web site.
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