Many parents have heard the horror stories of college students racking up a massive amount of credit card debt before they graduate. Unfortunately many of these situations would have been preventable with some basic budgeting knowledge.
The good news is that with technology and an abundance of pre-paid debit cards (like this one) on the market, teaching your kids about budgeting is actually pretty easy. Although a pre-paid card is not required, it does make for a much more hands-on experience, which may pay off later in life when your kids come in contact with some real plastic!
1. Track Your Child’s Expenses
Be sure to choose a prepaid card that offers detailed monthly statements. Then, analyze your child’s statements to ensure that fiscal responsibility is being exercised.
2. Create a Budget
This is something that you may want the child’s input on. After seeing what he or she spends money on, create a budget for each month.
For example, you could allocate a budget accordingly based on a $200 allowance:
- Lunch – $60 (Johnny will be brown bagging it some days)
- Video games, etc. – $50
- Bus fares – $50
- Entertainment (movies, arcades, etc.) – $25
- Other – $15
If Johnny spends $50 at movie theaters next month, he won’t be able to afford the expensive new video game that all his friends have, unless he wants to walk to school. Basically, he’ll have the incentive to keep spending under control – a very useful tool to carry into adult life.
3. Offer Budgeting Tips
Suppose that Johnny starts asking for more money. He just can’t afford lunch anymore, he tells you. So, you pull out his statement and, what do you know, he spends $3 per day on cookies at the school cafeteria. That comes out to about $60 per month on cookies – nearly half of his entire monthly allowance. You could tell Johnny not to eat so many cookies, perhaps by cutting it down to 2 days per week. Right there, he’d save $36 per month.
“But dad (or mom), I can’t afford to take the bus to school anymore, either”, he says. So, you whip out the statement again and notice that he is paying far more than the local mass transit provider typically charges for bus rides. You eventually find out that Johnny pays for his girlfriend’s bus ride 2 days per week. Take this as an opportunity to explain that, while he may get an earful from little Suzie and she may ditch him for the center on the basketball team, he can’t afford to support her right now! Say, is he also buying her cookies?
Basically, the gist of it is to analyze your child’s statements and provide tips to help keep him or her within budget.
4. Create an Item-Specific Budget
This is optional, but limiting a prepaid card’s use to 1 particular expense could be helpful. Suppose that you have another child who is 17 and works part-time at the local dry cleaner. At this point, you’ve decided to only pay for his lunch expenses at school, as his job pays for all of his other spending habits. We’ll call this child “Joey.”
Let’s say that Joey is a big eater. You wonder where all the cash you gave him is going. You’ve offered him a monthly allowance of $150 just for lunch expenses and he still complains that he doesn’t have enough. What does this kid eat?
So, you decide to track his expenses and notice that Joey is buying an entire pizza everyday for him and his buddies. You tell Joey that his money is set as is and he will have to make ends meet with $150. Now, Joey will either have to find another job or stop buying food for his buddies. Which do you think he will choose? Right there, he just learned the value of a dollar and that each purchase basically equates to more work.
5. Don’t Budge on Budgeting!
Have you ever seen a 16 year old girl going 50 miles per hour down a narrow side street while texting and blasting loud music? Do you think that she’d still be doing that if she had to pay for that car with her own hard work (or realized that she was driving a bomb on wheels)? Chances are that someone else paid for that car and that she won’t be financially responsible for the wear and tear (or worse) on it.
This is subjective reasoning, but if your child is always running out of money, it is probably not your fault. People tend to be most prudent with money when there is a defined limit to it. See the US Congress for an example of how many people behave when an outside source provides virtually limitless funding.
If you’ve made a reasonable budget for your child and loaded his or her prepaid card accordingly, be prepared to say no when Johnny runs out of money with 10 days left in the month. Well, you may not want him to go hungry for a week, but perhaps he can pack lunch at home instead of spending $5 per day at school. He may even learn that it’s cheaper to bring a lunch, thereby freeing up more money for his entertainment expenses or even to reel little Suzie back in!
In essence, your child should learn that, once money is gone, it’s gone. This won’t guarantee a debt-free future for him or her, but you’ll have done your part to provide proper guidance.