By Kristi De Rycke, Registered Assistant
Guiding our children to grow up to be financially independent adults is one of the most crucial tasks assigned to us as parents. It is also one of the most daunting. I have been seeking information on this topic to use with my own daughter. I didn’t know where to even start with this overwhelming topic. So…I googled it. I didn’t get too far into my research when the same book popped up repeatedly. Dave Ramsey has always been a favorite of mine. He cuts to the chase and tells it like it is. Here was a book that he had written on teaching kids about money. Even more intriguing was that he wrote it with his now adult daughter, Rachel Cruze. I went on Ebay and bought a used copy. Hearing the stories about how he handled situations about money and how his daughter remembered those same situations made for a very easy and interesting read. Now if you are planning to read this book on your own, stop right here. I don’t want to ruin it for you. It is a very good book and well worth reading cover to cover! If you are so busy with day-to-day tasks of raising a family that you cannot imagine reading an actual book until at least one child graduates, then this is for you. Here are the top 10 lessons that I got out of the book to get you started. There are many more gems within the book so read it when you get the chance.
Background story: Dave and Sharon Ramsey had amassed a $4,000,000 portfolio through real estate. They lived the life of wealthy people for years until they made some bad business decisions. Rachel was 6 months old when they filed for bankruptcy. Dave and Sharon went through some very tough times before rising up determined never to fall into financial devastation again. They have taught many millions of Americans through the books, shows and The Dave Ramsey Peace University how to improve our own financial situations. Rachel and her siblings were among the first to receive their message. Here are 10 things to get you started with for your own children or grandchildren.
Work, Spend, Save & Give: Dave states that work is the only way to produce money which is then split between spending, saving and giving.
Commission vs Allowance: Dave’s message is work and get paid, don’t work, and don’t get paid. No one is “allowed” money just for being, so he does not believe in using the word allowance. He recommends having the children have certain set chores and they get paid a specific commission for those chores if they complete them. The recommendation is to set the amount per chore. For example, 5 chores at a dollar a piece. If the job is done, the child is paid that week. If the job is not done, that dollar is not paid out. He is very clear that there are certain things that kids need to do just as a member of the house. It is non-negotiable that kids do other things when asked even if they are not on the list. He explains that if there is not money tied to some jobs you lose the teachable moments of his work, spend, save, and give principles.
Teaching Skills By Age:
- Ages 3-5: Choose very simple tasks like matching socks, picking up laundry and making the bed. Pay them immediately as they need the direct connection of work and the money you are handing them. The main goal of the money is to spend. They are too young to implement the saving and giving ideas. Have them save long enough to buy something that they want. Let them hand over their own money to the cashier to feel the pride of a job well done.
- Ages 6-13: Increase the number and intensity level of the chores. Continue to have the children do tasks just because they are asked in addition to the set number of specific things that they get paid for weekly. The commissions can be paid out days after completion of the task at this age but remember “No work, no pay”. When kids are in the older years of this age range, you can encourage them to make money outside of the home for babysitting, doing yard work or walking dogs. Dave encourages using the envelope system in this age group. Give each child three specific envelopes labeled spend, save and give. Every dollar earned in commission needs to be split between these envelopes. Option: You can apply this system to gift money given throughout the year as well. He clarifies that the “save” envelope was more a long-term spend envelope. Rachel said it wasn’t for saving for college or a house but more for something that would take weeks or months to buy.
- Ages 14 to college: When Dave and Sharon’s kids turned 14, they graduated out of payday at home and into a checking account. They took the amount of money they normally would spend on each kid for entertainment, clothes and other needs and put that amount in the checking account monthly. If the kids wanted something over that amount, they had to earn it outside of the home. He admits that this is a really scary concept for parents as we can imagine our kids cleaning out the balance on the first Friday night. However, he explains that you should teach budgeting and balancing. You are also to supervise the checkbook until you are confident that they have the skills to do it themselves. He reminds us to keep in mind that they are teenagers with that mentality and to be patient with their struggles and attitudes. He asks the question that as parents would we want them to make mistakes at that volume of money while they are under our roof or make more costly mistakes later in life.
- College age: He explains that if you as a parent want to help your children with college to be sure you are out of debt, have a full emergency fund for 3 to 6 months expenses and are already contributing 15% to your retirement. He includes 3 never dos: don’t take out debt for your child’s education, don’t cosign a student loan and never cash out your retirement savings for college funding. There is an entire section on college that could be helpful if your children are approaching this age as a much more complex and expensive phase of life.
Let Your Child Fall: Dave explains that it is important to teach your kids mistakes with their smaller amount of money. When it is gone, it is gone. Let your child buy something that you think isn’t worth it or that will exhaust their savings (remember not long term savings but saving for a larger item savings). It is good to explain ahead of time “If you buy X, you won’t have money for Y”. Then let them make the final choice. Dave firmly believes that a lot of people make very expensive mistakes as adults simply because they weren’t allowed to make inexpensive ones as a child.
Patience Is A Virtue: He explains that one of the best ways to avoid a bad purchase regardless of if you are a child or an adult is to sleep on it. Leave the item at the store and go home. If your child still wants the item the next day, let them take their money back to the store and purchase it. They may or may not decide to return to buy it. The value of this lesson is worth the extra trip as they can use it into adulthood to clear their mind and make a good decision.
Cash Hurts: He encourages using cash versus a card as it hurts more to hand over cash than a neutral object like a card. He also is a very strong believer in not getting into debt. He states that a credit card is one of the best ways to have your child live in debt the rest of their lives. He explains that the Ramseys only use a debit card for purchases versus a credit card.
Teachable Moments: You cannot set a schedule for how to teach these skills. Events occur and that is the moment to try to teach the concepts. Look at events that occur in your day-to-day life. Also take advantage of any family or friend situation that you may witness.
Give: Dave’s message is pretty clear that we should give as it is not our money anyways. He is a strong believer that God gives the money to use and share. He recommends making sure children see examples of you as parents giving away money for good causes. They gave their kids $5 from age 6 to 13 and $1 had to go to the give envelope. They encouraged their teenagers from 14 on up to give of time and talents as well.
Who Should Teach Our Kids This Lesson?: Dave is pretty clear that as parents if we don’t teach our kids about work then we are not being kind but irresponsible. It is our job to teach our kids about work and money. It is not the school’s, church’s or anyone else’s job. I hear you…this is an incredibly daunting task but just start with pieces and move forward.
Non-traditional families: He acknowledges that if you are a single parent that you have your work cut out for you. He recommends surrounding yourself with family or friends that are a part of your child’s life. Talk to them about your goals to teach them and have them help you. Parenting after divorce may mean that you and the other parent may not be on the same page. Dave says to stay consistent with your values and as they get older you can have more frank conversations with the reasons behind your decisions. You only have control over what happens in your household.
My favorite quote in the whole book and one I have already told myself in situations in my own life: “No is a complete sentence!”
Ramsey, D. & Kruze, R. (2014) Smart Money Smart Kids. Brentwood, Tennessee: Lampo
By Greg Johnson
What great lessons that all families should learn from. As my children continue to grow and learn about money, I feel it is more important than ever we teach them these types of habits. We all work as hard as we can to provide for them and the last thing any of us wants is to see them blow the money they have earned, or we have provided for them. If you don’t take the time now, who will? These are great lessons, and I would encourage everyone to build their own plans on how they are going to teach their kids about money.