Teaching Wise Money Habits for Tough Economic Times

With the economy in a recession in 2009  for more than a year and the stock market down about 50 percent from its peak, it is difficult to find a silver lining in personal finances. But this may be a wonderful opportunity to teach our kids how to make the most of their money in tough times. After all, good and bad economic cycles flip-flop and will continue to do so. Children will likely see additional difficult economic climates, so now is a prime time to teach them financial lessons that will serve them well throughout their lives.

Budgeting 101

Teach kids how to set and follow a monthly budget. Break down your (and their) expenses into specific categories and keep track of your monthly expenditures using a spreadsheet or journal. Some examples that would be of interest and affect your kids might be lunches, sports gear and related costs, supplies and payments for other extracurricular activities, and clothing.

Withdraw a certain amount of cash at the beginning of the month for the items that you can pay for with cash. When that cash is gone, you are done spending for the month. This teaches kids to think in segments as well as models proper cash management and not using a credit card as a “backstop.” Granted, kids have fewer required (and less costly) monthly expenses than their parents, but it starts them thinking about setting and following a budget.

Trim the fat

Most families are looking up and down their monthly living expense budget lines for areas that can be trimmed or eliminated to save much-needed pennies. Take advantage of the tough economic times by contacting some of your service providers and ask for a discount. Especially now, many companies would rather provide you with a discount than lose you as a client.

Examples of ongoing costs are cable, cell phone, credit cards and mortgage. Contact your cable company and say you would like your monthly package fee lowered. A cell phone company could transfer you to a less-expensive monthly package. Your credit card company might reduce your interest rate if you carry a balance. With low mortgage rates available, consider refinancing to potentially save a couple hundred dollars a month or reduce the term of your loan.

Enlist older children to help gather some facts so you stand on firmer ground when approaching companies. For example, they can compare other cell phone company promotions and plans to see if there’s a cheaper alternative. Your current provider may be willing to match the deal to keep you as a customer. Tie math to real life by having kids review your monthly bill and see if your family’s usage could be better met by another, less-expensive plan.

Also look at recurring child-related expenses together. Pick out the main ones, including lessons, going to the movies, and other entertainment such as bowling or visits to the mall, and have your children prioritize what is most important to them. Determine a set dollar amount for the month that you and your kids stick to. If you can’t pay for it, you can’t have it.

It seems like every college student in the country has his own credit card, and even some high school students. Building good credit is important for later in life, but being exposed to credit cards at such a young age can be dangerous as well. Teens would be better off with their own bank savings account with a debit card tied to it. This way, the money comes out of the account with each purchase, and when it’s gone it’s gone. There is no “credit limit” or unpleasant surprise in the mail the next month in the form of a credit card bill. This will instill a financial discipline to take with them through college and beyond.

These bad economic times can be turned into a positive learning experience for our kids. Many of my older clients often tell me how their current financial habits were shaped by their parents, whether in the Depression era or post-war period. Many decades later, they still remember how their parents did things, often emulating them in their financial decisions today. They are a generation of good savers as a result, and with any luck our kids will be too. Just make sure they remember only good money-management habits.

James R. Miller, CFP, is senior vice president of Tilson Financial Group, an independent financial planning firm in Chapel Hill. You can reach him with questions at jmiller@tilsonfinancial.com.

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