Monday, 30 April 2012

Teach your kids about money

Teaching kids about the value of money, saving and financial responsibility is your job as a parent.  If children are given opportunities to learn money management skills, we empower them to discover what money means to them.
Kids today think that money comes out of a machine – the wonderful, magic machine known as the ATM.  They have never had the opportunity to develop an understanding of how hard it is to earn money, how quickly it is spent and just what the cost of living really is.

Chances are that your children are going to have to work for a living. And if not properly prepared, our kids will likely spend themselves into deep trouble as soon as they are able to qualify for their first credit card.

Here are some things you should do (or not do) the give your children a head start to financial literacy.

Get your child a piggy bank.  Deposit coins when you want to reward them. They won’t understand the value of money at such a young age but it does help them develop a sense of ownership, pride and accomplishment as it fills. Let them make their own choices as to when and how to spend the coins inside. Our children have two piggy banks – one for saving and one for spending.  Each time them have money to deposit, it must be divided equally between the two.  We are trying to teach them the difference between saving to spend AND saving to save.

Have your child open a savings account. Many banks offer a special account for young children which include bankbooks that let the child see their money grow.  Each month your child will see that having money in their account will earn them more money. 

Do your banking with the kids. Tell them what you are doing, what bills you are paying and why.  Explain what you are saving for and why you can’t just go out and buy it right now.  Teaching them about budgeting and savings will do a lot to show them that how the financial world really works.

Provide your child with an allowance when you start to expect them to pick up and put away their toys, help with the dishes or fold laundry.  Be clear about your expectations.  They need to know what tasks they must do in order to receive a certain amount every week -- to save and/or spend.

Let your kids earn extra money.   This doesn’t mean you have to pay them clean their room.  Allow them the opportunity to do additional tasks around the house like washing windows, trimming the hedges, vacuuming out the car.  I’m sure you don’t really like doing these tasks either so they should be worth at least a couple dollars.

Encourage older kids to look for additional work and other means of generating income outside the home: Babysitting, cutting grass, shoveling snow, delivering papers etc. Let them feel the satisfaction of being entrepreneurial at a young age.  You’ll be surprised how it makes them feel.

Teach responsibility. If your child can't be bothered to put their toys away and they get stolen, don't feel the need to replace them. Make them save their money to buy another. It's hard for the parent, but it is great lesson for your child to learn.  They need to realize that things cost money and that it often takes time and hard work to get the things we want in life.

Enhance their entrepreneurial skills.  Perhaps you can help them with a car wash or lemonade stand.  Teach them that nothing really comes for free and explain that they must pay for the supplies from any earnings that they make

Don't give in to everything.  Kids ask for things all the time.  You shouldn’t feel guilty about say no. It's a very important lesson for your children learn the difference between want and need.  We as adults need to focus on this more often as well.  Now, as a parent we do your best to provide the things our children need like food, clothing etc.  However, they don’t need the newest toys or electronics.  This is a very hard lesson for all of us to learn and some people never really get it, so be sure to teach your children at an early age.

Let them make mistakes.  It’s important that we allow our children to make mistakes.  After all, we learn more from our mistakes that we do our victories.  Let your children find out that there is smart spending and silly spending.  Try not to micromanage their money.  It’s better for your children to make mistakes now than later when they are dealing with higher ticket items.

As parents, we can’t rely on the school system to teach our children about proper finances.  We must take the responsibility upon ourselves if we want our children to succeed.  If you have a hard time with it yourself, perhaps you may need to call on the services of a Financial Planner to help you learn as well.  Many Financial Planners would be happy to help.

Monday, 23 April 2012

Money Saving Monday - Couples Finance

When I got married, my wife and I both worked full-time.  We agreed that, when we had children, she would stay at home.  With this in mind we both knew that we would eventually be a one income family so we decided to combine our finances from the beginning.  We moved to joint bank account and haven’t looked back. It has worked for us but, for many of my clients, this becomes a very delicate subject. 

Here are three options to consider.

Maintain Separate Accounts

Couples maintain their separate finances, and split joint expenses as they come in. This may work well for couples who value their financial independence, but can be difficult in other ways.

Sorting out how to divide every expense takes some effort from each partner and can cause confusion.  Also, budgeting as a couple can be complicated when you both maintain separate accounts.

How you decide to arrange your finances as a couple can affect your individual credit reports.  If you have a credit card together, only the primary card holder will develop a credit history by paying it off on time.

If you are thinking about expenses using a joint line of credit or a joint credit card, don’t forget to consider your responsibilities as a joint borrower before making your decision.  If you co-sign a loan, you become equally responsible for repaying the loan.

The Combination of Separate Accounts and One Joint Account 

With this approach, couples use their personal chequing accounts for individual expenses, but open a joint account to use for shared expenses like groceries, rent or mortgage payments, and utility bills.

Couples that choose this option can split their shared expenses easily.  Because individual purchases are separate, though, budgeting as a couple can be more difficult.

If you choose this method, you need to decide which expenses will be paid for jointly, and how much each of you will contribute to shared expenses.  Will you split them 50/50 or contribute a percentage based on your incomes?

In some cases, having separate spending accounts can avoid problems. I’m talking about problems that face many people when they need a few bucks to go out with the girls (or guys) or want to buy something on a whim.  In this situation all income goes into the joint account and the couple’s determine how much spending money goes into their individual accounts (kind of alike an allowance) and at what intervals.  This can be the same amount of money for each person (recommended) OR a percentage of income.  Just remember that if you decide to go with the percentage of income because it means YOU get more spending money, things change, people lose jobs, get better jobs or get raises and you could find yourself on the opposite side at some point in the future.  Also, one very important thing to know is that no one has to justify where their spending money goes!  Whether you decide to save up for something or just spend it the same day you get it – that’s up to you and you alone.  If you spend it, you don’t get more until the next time.

One Joint Account

With this approach, couples combine their incomes and pay all expenses—both joint and individual—from their shared account. This makes tracking expenses very simple and helps build an open and transparent relationship. However, this arrangement can be hard for people who enjoy their financial independence.

If you choose this method, consider whether there will be some exceptional expenses you handle individually, such as paying off debt that you had before you entered the relationship. 

There are many things for couples to consider when deciding how to arrange their finances.  I suggest seeking the advice of a Financial Advisor as their expertise in this area may avoid potential conflict down road.