My last blog on money management was the pretext to applying specific techniques where I created scenarios and taught lessons that when my daughters applied them as future adults they would be able to comfortably manage their money and have a lifestyle that is commensurate with their income.
As noted previously, this was a deliberate effort to instill in them an innate understanding of priorities, patience and credit/debt management. I sought to set a sound foundation whereby they felt confident and understood the difference between "want versus need." The saying "don't try keeping up with the Joneses," was used when trying to compel others to effectively live within their means. We used it more than once in my house to emphasize you can't always have what you want when you don't have the money to afford it.
The fundamental change occurred when they started "working" for me in the form of making my lunch everyday before I went to work in the Pentagon. Unlike when they were 5 or 6 and really were happy to have money, this marked a clear change in accountability. My youngest was 9 years old, my oldest was 11 - and I would not start any later than those ages. My oldest had demonstrated positive tendencies regarding saving and being conservative (overly at times) about spending her money, but not quite so with my youngest.
Once they started making my lunch I focused on two initial aspects - 1) pay is predicated on the work done, 2) you need to know what you are doing with the pay you get. This meant defining when they would get paid, and how much so they could determine what they will be earning every month. Initially it was an hourly rate. Therefore, if I was out of town, or they forgot to make my lunch, they would only get paid for what they physically did for a given month. Later we "renegotiated" and did salaried so regardless of how often they made my lunch they knew how much they would earn. This also meant that if they forgot one summer morning, I would wake them up because I was already paying for it. The lessons taught in customer service, adjusting their schedule and being responsible served as teaching points as well.
Once we established their monthly income, we had to educate them on where to put their money and how to access their money. We also taught them what they could do with what they have any given month, or if they saved over several months what more they could buy. The first year was basic education on earning money, saving money, spending money and accounting for where the money was going over time. This was the foundation, and once we changed to salaried and they approached the teenage years, we expanded from that reference point. We opened up their checking and savings account, we introduced them more formally to seeking sales or deals so their money goes further, we exposed them to various ways to spend their money beyond cash exchange (i.e. using a debt card and writing checks, including tracking the latency between when the check was written versus cashed).
This foundation and the basic money management principles really carried through high school. And with routine discussion, explanations of their reasoning for spending and accounting for what is or is not in their account over the 7-9 years allowed me to understand whether they "got it" in real time. This appreciation allowed me to be more restrictive whenever their maturity was not progressing in a way I thought was appropriate.
In the next blog I will cover the last phase - the college and early post-college years. This phase introduced the use of credit cards, appreciation of credit score, impact on interest rates, purchasing of large dollar items, investments and managing bill-paying versus discretionary income. I will write about how I went about ensuring the near decade of education was not compromised when they became young adults - and the amount of money and impact of mistakes significantly increased.