From a very young age, my children were expected to put one half of all their very generous monetary gifts into a bank account (pot of money) from which they cannot withdraw any money. The other half (pot of money) was theirs to spend with ritually no limits, just guidance. For the purpose of this blog, I will refer to the first pot of money as their long term savings, and the second pot of money as their discretionary money. The purpose of the long term savings is to get the children accustomed to taxes being taken out of earning, as well as getting into the habit of always putting something aside for the future, to limit the need to pay to borrow money. The kids discuss using this long term savings for college expenses, to buy their first car, or other large future expenses that may be unknown at this time. Yes, we started these conversations when they were in elementary school!
As they grew, they both began to ask Mom to hold onto their discretionary money, because this way they wouldn’t have to remember to bring their money to the store when they saw something they wanted to buy. Mom would dutifully ring up their purchase on a separate transaction, write their name at the top of the receipt, and subtract it from a running balance kept on the computer at home. When the balance on the computer at home became zero, then they would be told, “NO, AGAIN” when they asked mom to buy them something because they didn’t have any of “their money” to use, and they understood this. Believe me, they always try to get me to spend my money first, and have a sales presentation ready to go on why this isn’t a discretionary purchase. Often, they come to me to ask their balance, and I am sure to have it available.
Now comes step two, and I am very excited to share. My daughter is beginning high school in the fall. With that, she will also be taking responsibility for her discretionary money. This is not a choice, but an expectation. If she decides she doesn’t like the idea, or is “not ready” for the responsibility, she will quickly change her mind when she realizes the only way she will be able to access any discretionary money is through this method. This summer, beginning with her birthday in June, and the possible gifts she may receive from her grandparents, along with her current very small balance of discretionary money, she and I are going to the bank (probably a virtual one, on line) to set up her first checking and savings account with an ATM card.
Here is the plan, so that my daughter learns good financial habits. My expectation for her to have “control” over her own money is that she MUST do the following things:
- On a smart phone app, she will keep track of every expenditure to the penny (debit side of balance sheet). If she does not have access to electronics, an envelope with the notes on the outside, and the receipts on the inside works just fine. My intent is for her to be aware of how she spends her money, not to criticize and judge. I may not agree with her decisions, but they are hers to make, and hopefully from which to learn. To help me stay true to this, I will not be transferring money into this account for her to spend on anything that I consider my responsibility as her mother (ex: school fees and the like).
- Every week, she will give me a balance sheet (credits – debits = balance in checking account) of her spending with the purpose that reconciles with her on line bank account balance. She must give me the balance sheet BEFORE I deposit (credit) her her next week’s allowance. Now my hope is that as time goes by, we will be able to move this exercise to every two weeks then monthly, but we’ll see.
- She and I will get together to figure out the repercussions for abuse of the account (ex: over draws), which will be VERY severe beyond bank penalties, which she will pay – Probably loosing her Smart Phone for an entire semester. I have exercised this consequence before, so she will not doubt that I will do it again. Teenagers with flip phones are mortified teenagers.
- Last, she will balance her checking account AGAIN, once a month to check her work, and submit for approval.
To keep me honest, I read this blog posting to my rising 6th grader. Besides having to learn the meaning of the word discretionary (“Mom, why didn’t you just say my choice money?”), he confirmed the truth of my words. He has also advised me that he may not want to wait until High School to take over managing his discretionary money in this way. I love it!