Suze Orman's Action Plan (28 page)

ACTION:
Needs must be separated from wants. It is your job to provide for every need, and if it fits your budget, throw in a few wants along the way too. But let me be clear, when I say “fits your budget,” I mean you already have the eight-month emergency savings fund tucked away, you are saving for retirement, and you don’t have any credit card debt. If any of those aren’t in place, you are not allowed to give in on a “want” for your child.

If your child is upset by this, it’s time to introduce her to the notion of earning the money for the purchase through either a real job, such as babysitting, or chores around the house. If your child is already earning an allowance, come up with additional responsibilities for her to earn extra money. No freebies. No giveaways. E-A-R-N is the operative word here.

ACTION:
Whether you are at the mall or shopping online, always have a list of what you need, and stick to that list! If your child loves to shop and hops from store to store, do not let him make a single purchase until he has cased all the possibilities. If your list said you were buying three pairs of pants, then it’s up to him to choose the three. Not four. Not five. Three. Plain and simple.

ACTION:
It’s not whether he is ready for an allowance, it is whether you are ready to step up and begin teaching the invaluable lesson of earning money for work. That’s the only way you can impart the value of money. It makes me nuts that parents just hand out allowances as some sort of birthright. What a squandered opportunity to teach your child about being responsible and productive, and that it takes work to get money to buy what you want.

I am not a fan of the fixed weekly allowance. Rather, I would discuss a set of chores you expect your child to perform during any given week. I recommend coming up with two sets of chores for your child: uncompensated and compensated. Uncompensated chores are the jobs we all do as part of our contribution to being a family. For a small child, that could be something as simple as making her
bed or tossing her dirty laundry in the hamper instead of leaving it strewn around their room. Then you need to clearly spell out chores that you consider worthy of compensation—those that go “above and beyond.” For little ones, it may be something as simple as helping to deliver all the clean folded laundry to the correct room. Coach them during the week so they can learn what it takes to earn their allowance; don’t punish them by announcing at the end of the week that because they didn’t do their chores they won’t get paid. It’s so important to make this a positive experience, not a punitive one.

But you do need to be clear: If a child ultimately does not accomplish his or her chores, you must not pay her the allowance. Remember, this is an early lesson in understanding what it takes to earn money. You are instilling a work ethic here, and to reward children for work not done sends the wrong message. No work, no allowance. But that just raises the stakes for you to help them turn it around the following week. As I said, keep it positive, and make the weekly allowance conversation a ritual. Make it as clockwork as a paycheck.

ACTION:
Shift your child to receiving her allowance every two weeks, and make it clear there is
no coming back to the Bank of Mom and Dad for more. This is Intro to Living on a Budget. She needs to figure out how to make her money last to the end of the two-week period. When she hits 16, shift to a monthly schedule. Sit with your kids and figure out where their money goes and make suggestions of ways to discipline their spending. Talk about saving up for a long-term goal, such as a laptop. Work out a schedule of savings. Teach your children how to budget on your dime and they will be more likely to budget wisely in a few years when they are on their own. The kids who don’t know how to budget and live within their means are usually the ones who end up saddled with thousands of dollars in credit card debt in college.

And at the risk of stating the obvious: Tell her to get a job if she is coming up short. You are not to create more house chores simply to find a way to funnel more money to your kid so she can buy whatever she has to have this moment. It’s time for a
job
. And no advancing money to her once she has the job. She needs to go through the process of saving what she earns so she can eventually afford whatever it is she wants. The more time and effort it takes, the more valued the purchase will be.

ACTION:
Make bill paying a family affair from time to time with your teens. Whether it is literally writing the check or handling the clicks with online bill pay, let your kids see the utility bill, the credit card bill, and, God help us, the cellphone bill. You aren’t looking to make your kids feel guilty; this is simply an opportunity to open their eyes to what it takes to function.

Speaking of cellphones, when you decide to give your child one, don’t pass up the opportunity for a great financial lesson. Even if you are simply adding a child to an existing plan, let him know what his “share” of the bill is. I would recommend that you increase his chores and responsibilities around the house to offset the cost of his phone. Again, you are not denying him; you are taking advantage of a natural way to teach him that nothing is free. And any excess minutes he runs up need to come out of his own allowance.

You can also make the bill-paying exercise a challenge for your kids to help the family save more. If you’re like most families, lights are left turned on, showers can run forever, and everyone wants the heat cranked up in the winter and the air-conditioning blasting in the summer. Tell your kids that if they can get themselves—and the whole family—to reduce your bill by at least 10% (or more; you set the goal) you will pay them half of the savings.

ACTION:
You have a simple choice to make: You can do what is right, or you can do what is easy. I know it’s not easy, but there is no legitimate rationale for spending $1,000 on a kid’s birthday if that $1,000 will go on a credit card with 18% interest. Whether you scale back the guest list or go for a low-cost party—a slumber party only costs you a few pizzas and one night’s sleep and sanity—there are indeed ways to celebrate without breaking the bank. The choice is yours. And if you are about to tell me that you just can’t do that to your kid, I am going to ask you how it is that you think going into debt to pay for something unaffordable is good for her in any way.

The same honesty must be used when you are buying presents for your child, or for a party your child is attending. Buy a gift your family can afford. It is irrelevant what other kids get or give. Can’t imagine putting your kid in this situation? Please. Here’s what I want you to imagine: By playing this costly financial charade, you are setting your child up to be a financial mess as an adult. Let’s review: Your kids do as you do. If your gift buying telegraphs that it is okay to spend more
than you have to spend to keep up with the Joneses, then you’d better believe your kid is going to have lousy spending habits as an adult.

Another thing I want to point out: If you (or your kids) think that friends judge you by your possessions or the price of your gifts, you need an Action Plan for getting new friends or developing some self-esteem. Before the financial crisis it was easy to deceive yourself that you could spend beyond your means. That’s no longer the case. If the financial crisis forces you to refocus on what is important—love, support, friendship—and let go of the trappings of living beyond your means, I say: Good for you. You and your kids will ultimately be happier for living more honestly.

ACTION:
Denied. I don’t care whether the money was a bar/bat mitzvah gift or a generous check at Christmas from Grandma and Grandpa, you are not to squander this opportunity to teach good money habits by letting your child squander the money. You are to introduce the 10-10-80 Rule:

• 10% of the gift is your child’s to spend as he pleases. Do not judge how the money is spent.
  For this to work, you have to be supportive of every step of the plan.
  

• 10%
  of the gift is to be donated to a charity of your child’s choosing. Don’t impose your beliefs; instead, help your child think about the causes he considers important. If you will be writing the check on behalf of your child, make it clear that the donation is clearly made on his behalf. You want him to receive the acknowledgment (and all the follow-up mail!).
  

• 80%
  is to be saved or invested by you for the benefit of your child. Explain that you are not taking the money away from him, you are merely overseeing the management of that money for his future benefit. It’s time to start explaining the high cost of your child’s needs and wants—not as a guilt trip, but as an honest and truthful education about what it costs to, well, live life. And that’s why 80% of the gift will be earmarked for some of his future expenses, be it an incredible summer trip when he is older, an expensive specialty camp, or even dorm room furnishings. Make it clear that this is about creating more for him—by saving, rather than spending, the bulk of his gift. Check in with your child once or twice a year to show him the status of his 80%. Use this as the great opportunity it is to talk about saving and goals, and the cost of providing so many of the experiences he wants, and you want for him.
  

ACTION:
Stop feeling inferior. Stop thinking about this and just say something to them. You get to raise your children as you wish. Your siblings and in-laws should respect that, but first you have to respect yourself enough to speak for yourself.