Teach money management early at home

Parents should never assume high schools and colleges are teaching their kids about money. Money education has to start at home, preferably at a young age. Ultimately, you want children to understand that success and the things they desire come from hard work, not handouts.

Based on feedback from our clients and my experience as a parent of three, there appears to be two common strategies parents deploy. I label them the Enterprise and Entrepreneurship strategies.

• Enterprise strategy: For many Americans, we go to school, graduate and get a job. We may move from one job to another but other than bonuses and pay raises, our income is fairly fixed. In this situation, we have to learn to live within our paychecks. Parents that live in this model will naturally gravitate to teaching their children in the same manner. The child will get a weekly allowance and these funds are typically spent at the child's discretion. Chores like taking out the trash, making the bed, vacuuming or yard work are a part of being a member of the household and are not compensated directly. The enterprise model is fairly common and can be used to teach children how to manage their weekly allowance.

• Entrepreneurship strategy: In the entrepreneurship strategy, money is earned based on the amount of work performed. The more chores or tasks that you complete, the greater your payday. The concept here is that you want to tie work to income. While there is certainly work related to the previous enterprise model, it is tied to being a good citizen. Here, the kids are responsible for turning in their chore sheet each Friday for a paycheck. There are some daily tasks that you do not get paid for, like making your bed and personal care. When opportunities arise, you try to teach them how business works.

In both scenarios, children receive money, usually weekly. For budgeting, one option is Dave Ramsey’s envelope philosophy. Here, you would have three envelopes marked with save, give and spend. Ten percent is put in the give folder. This is to be given to church or an organization that helps others. Twenty percent is saved. When they get older, have them set a goal of something for which they want to save. This is to help teach delayed gratification. There are no interest-free loans from Mom and Dad or five easy payments of $19.99! Hopefully, delayed gratification will help keep their revolving credit card debt down or eliminated. For now, savings goes into their bank account. The spending folder is for just that, spending on candy at the Home Depot checkout, toys at Target and anything else that might catch their eye. If they do not have enough money, or they left it at home, then they can’t purchase it.

There is a trend that I call advanced budgeting for teens. Once a month mom, dad and child sit down and work out a monthly household budget. The teen-ager sees the incoming funds and expected expenses and then helps manage the implementation of the budget for the month. This will repeat each month, maybe for a few years. For affluent families where the child will be inheriting a trust fund, maybe as soon as graduation, this is a great idea. For families that want their child to do as I say and not what I do, this could be more challenging.