Prepping Kids (Part 4 of 4)
Essential Money Skill #6: Credit is NOT disposable income.
Yup, I know it flies in the face of everything everyone else has been saying, but credit is NOT disposable income. Student loans should not be used to go pub-crawling. Credit cards aren’t an “entertainment fund.” And a line of credit is not an emergency fund.
Debt has become so pervasive that it seems like everyone’s in it. You may think this is “normal.” So might your children. But it’s not normal for someone who is financially healthy. And if you bought into the lie that making your minimum payment is good enough, rest assured that your kids did too. After all, if you can have a fab new laptop that cost $1100 for a mere $34 a month, it seems like an easy choice.
If you haven’t already done so, go and read Student Debt Legacy, and make sure your college or university bound kid reads it too.
- Once your child is 12 or older, teach her about credit, how it works and the costs involved. Give a young child a credit card on the Bank of Mom so she can learn how to use it.
- Older teenagers can apply for a credit card with your co-signature. Make sure the limit is low … no more than $300. Have your child learn to use and repay the credit card, keeping track of purchases and making payments on time until the habit is established.
Tracking Your Money
In a small notebook, write the current balance in your bank account at the top of the page.
Each time you use your credit or debit card, write a cheque, or take a cash withdrawal, write down the amount spent and subtract it from the balance. Don’t forget to debit the automatic withdrawals that come out of your account every month for things like car insurance or loans.
Every time you make a deposit, add it to your balance.
You now have a real-time balance that shows how much money is available to spend. And you can’t spend money you’ve already used elsewhere (like on a cheque that hasn’t cleared, or on a credit card transaction that hasn’t come due).
When your credit card bill comes in, check the transactions against the list in your notebook. If there’s something on your statement that’s not your doing, call the credit card company right away and identify the wayward transaction.
- Tell your young’un about his credit score, what it is, how it works and how to make it suck! Ask him what he thinks would happen if he got a bad credit rating and a low credit score. Explain that with a low score, interest rates go up and the likelihood of getting a loan you really need goes down.
Essential Money Skill #7: Keep Money in Perspective
This is one of the most important lessons you can teach. I was at a small party a while ago when a teacher-artist-mom started telling me that her son was at university. He is a wonderful artist, but has decided to not follow his true love because he wants to be able to make lots of money. She was a little sad.
I have to be honest, I’m of two minds on this: first, I commend the young lad for being practical and recognizing that the life of a starving artist isn’t easy. Second, like his mom, I’m a little sad for him. If he has to give up what feeds his soul so he can have loads of stuff, I wonder just how happy that stuff will make him.
He’s young yet and with a business degree may find a way to make both work together. Here’s hoping.
Money, in and of itself, doesn’t mean anything. It’s what you do with the money. Money is a tool, a means to an end. If you don’t know the end you want to achieve, you’re likely spinning your wheels.
People exhaust themselves trying to maintain lifestyles they can’t afford. Whether it is the social pressure to conform or our a sense of entitlement, so many people are willing to put their futures at risk so they can make the right impression. They MUST drive the right car, watch a high-definition television, eat out three or four times a week, drink the best Bourbon, take the right vacation. And many people are willing to spend money they haven’t yet earned to maintain the illusion. Keeping Up With The Joneses is a dangerous game. It will not only sap your bank accounts, it will sap your life’s energy.
One way to help your child gain some perspective is to talk about what it is she really wants in life. I often talk to my Alex about how important it is to live a worthwhile life: A life that brings challenge and love, that allows you to share, to laugh, and to be happy. So, what makes your life worthwhile? And what are the things that your child thinks will make her life worthwhile? And what is she doing to put more of those things into life?
It can’t just be about money, or more money. According to Dr. Tim Kasser, associate psychology professor at Knox College, and Dr. Richard Ryan, psychology professor at the University of Rochester, people who rate making money as a primary goal score lower for mental health. They are at a greater risk of depression, are more anxious and suffer lower self-esteem, and have more relationship problems.
- Talk with your kids, using questions like these as a spring-board (not all at once… over time):
- What jobs would you NOT do for money?
- If someone offered you $50,000 to do something that might end up being a bad thing (you’re not sure right now), would you do it? Why or why not?
- If a cashier gave you the wrong change, what would you do?
- A friend asks you to lend her $500 for a couple of days. You have $500 in the bank to pay your rent next month. Would you lend her the money?
- Your boss didn’t pay you last week. He was short the cash and said he’d make it up this week. When you show up for work, he’s not there. Neither is your pay. What would you do?
- What would happen if money grew on trees?
- How much money is “enough”?
- What makes you happy?
- How can you work at something you love while taking care of yourself financially?
- If there are areas you think your kids are a little wobbly on when it comes to either their money or their life skills, it’s not too late. It’s never too late. I got some of my most important money lessons from my mom long after I left home. It was at her urging that I took out disability insurance while I was young and healthy and could afford the premiums.
One December my then 15-year-old Alex got a notice of the auto-renewal of her GIC. The interest rate the bank had renewed at was a pathetic 1.5%. I coached her on what to say when she went in to negotiate a better rate.
“I’d like you to cancel this GIC and credit the money to my savings account,” said Alex with all the confidence she could muster. “If you’re only going to give me 1.5%, I’ll move the money somewhere I can earn more.”
The CIBC rep was respectful and brought up her file. “If you want to go for a longer term, I can offer you a better rate.”
Alex looked at me with huge question marks in her eyes. I stayed quiet. The rep continued, “If you’ll lock in for two years, I can offer you 4.25%.” I nodded slightly and smiled.
“I’ll take it,” said Alex.
And thus begins a young customer’s self-advocacy and lifelong focus on making things happen the way she wants them to. Small steps, coaching and practice build skills. The next time, it will be easier.