Teaching Kids Financial Responsibility

One suggestion I'm waiting to try:
If you have a kid over 5 years old, ask him/her to handle the grocery budget for 1 month. All they need to do is track grocery spending in that month and make sure you buy things that are only necessary and have some cushion left when the month ends.

 

I am not an expert in parenting but my son went to a program on financial planning and balancing the budget session. This was based on his request more than my suggestion. Like most kids, he obtained his driver's license at the age of 16 and got a car within a year once he is permitted to drive on his own. It was a new vehicle that he drove to his high school. When he met with the first accident where the liability on accident came to us, we have discussed it at length with him about how to handle it. This is only for the limited purpose to educate him what it takes to handle an accident. When he reached the age of 16, we taught him the importance of earning while studying even though we didn't permit him to work until he completed his high school.

It was time to apply to various Universities. We let him choose the Universities of his choice including out of state Universities. He got admission in five universities he applied for including two out of state universities. When he showed the admission letter, we discussed various options with him including student loan, parents spending the tuition fees out of their savings, utilizing the Bright Future Scholarship Program by attending an University in the state, etc.

I have communicated with him that I have set aside $100,000 in CDs for his collegiate education and he can either use it for his stay, boarding, car insurance, car maintenance, etc. or use it for tuition fee in an out of state universities. He chose an in state university and decided to take my option of not to exceed $25,000 per year for his boarding and stay. Tuition was paid by Bright Future Scholarship Program. A portion of the tuition fee was still payable which he took care himself. Books needed were all purchased by him. I gave one credit card of mine for him to manage payments like rent, gas, boarding, etc. I was transferring funds only monthly to ensure he didn't spend beyond certain limits. I was a joint-account holder of his bank account and even today it is a joint account. If the expenses go above and beyond $25,000 in a year, he was supposed to supplement with his own earnings. I told him dropping car insurance to save money was not an option as he felt it was very expensive for a teenager. Some years, he worked part-time as financial transcription assistant and other years he worked for a fast food chain. Based on our discussions, cost of any further studies after undergrad will be borne by him.

After he finished his undergrad, he did his grad school with another University in Florida which offered him two year Research Assistant position with tuition waiver and medical insurance coverage. I have not paid any money for his studies. After finishing his grad school, he has obtained another four year scholarship from one of the top 10 engineering Universities located in Florida. The total scholarship value was $150,000 over four years including tuition waiver, monthly salary for the position as a Research Assistant, Medical Insurance, etc. So far, he manages all his expenses on his own.

So far, he has not taken any student loan as yet and he intends to complete his entire education without any debt of his own. I told him up front that as parents we could spend up to $150,000-$200,000 for his higher education or alternatively spend $100,000 for his higher education and give him up front payment for the house he buys (wherever he settles down) after he goes to work. He chose the second option.

Gold purchase happened when he was going to the University from home and was working as Research Assistant. He saved some money and was going to spend most in Amazon purchases. My wife intervened and told him how happy his future wife would feel, if he were to give a gift of his own to her. He asked, "how do we determine what she likes before meeting her?" and my wife answered, "Let us not buy anything specific but buy 100 grams of gold bar". That is how he ended up investing $5,000 of his savings in gold bar that is meant for his future wife. In addition, he has also co-invested $2,500 of his savings in a small payroll company as 10% of my total investment of $25,000 into the company.

As per the discussions, we have transferred the title of his car to his name after he paid most of his dues. He knows now that any accident liability will be out of his pocket. We have a Drivewise in his car that electronically monitors high speed, breaking events, driving between 11 p.m. to 4 a.m. and total mileage per month. Now, I paid cash for his Motorcycle he wanted and registered in his name as well. He will have to pay back the amount over the next 2-3 years.

It makes me feel good that he is very responsible financially and is a careful driver after all that life experiences. As a student he enjoys a great discount for Amazon Prime and hence sometimes, he treats himself with some extraordinary purchases but so far manages paying them within his earnings.

Viswa

 

@Rihana,

What kind of a program was it? Like 1-2 weeks or longer? During high school?

It was a one-week workshop when he was in the middle school. Interestingly, they gave him real money and asked him to make spot decision on how to make best use of it as the final test. The value of all items together exceeded the money given to him. Interestingly, he invested 10% on continuing education and 30% on savings for future.

Interesting. Didn't permit to work so he can focus on studies and activities? I often read that working in teen years builds character, responsibility etc.

True. High school students who work are much more responsible in spending. However, our decision not to allow him to work was driven by another reason. We have made a strategic mistake of asking him to join a program we liked instead of a program he liked. His grades dropped resulting in us asking him to switch in the Junior year. Therefore, we guided him to focus only on studies and nothing else with a promise that he would pick his further education on his own.

It is one of the biggest blessings when a child is willing to listen to parent in this regard. I am very lucky this way. I think it depends on the child's nature, and perhaps friends circle.

You are absolutely right.

Was it hard to have such policies? As a parent, you might feel like making things available to kid even before he needs or asks for them.

This is the best part of the parenting I feel very proud of. Despite his mom telling him 100 times that dad would be ready and willing to spend more, if he asked, he decided not to ask at all because it was his choice. It worked like an imaginary fire wall created by him.

Viswa

 

@Rihana is this a us parenting related post or in general??