This post is a sequel to "Personal Finance Topic #49"
Hard economic times are spreading like plague. Many families are suffering for all sorts of reasons:
- Some were already living a paycheck to paycheck existence
- Some lost employment or suffered a significant income reduction
- Some suffered disability or serious illness
- Few had to separate finances due to divorce or separation
- Some lost their income earning spouse to death or disability
- Some lost their home/transportation due to economy
Someone asked me how my wife and I handle kids and money issues. So here is my answer. Let me say first that my wife and I have enough money in the bank to provide for most of their financial needs. So supplying money is not an issue.
We have different levels of age-dependent ways to helping our kids.
First, when my kids were teenagers, they had to earn their pocket money by doing chores. We did not give them allowance. We taught them to keep at least $500 emergency fund in the bank - which saved them many times. We gave them money for school, supplies, and Boy Scout/Band expenses. Clothes and shoes were 50/50.
Secondly, when they started college, we paid for school tuition/dorm and books. They have to supply the rest. We have a standing agreement that if they fail a class, they must refund us the money for that class. We match $ for $ on used car. (They cannot afford a new car, so they have not paid for more than $3,000 for a $6,000 used car.). They must have part-time jobs to pay for gasoline, food, car insurance, and other pocket money, and must have emergency fund ($500).
I also match $ for $ on Roth IRA up to $2,500 per year per child ($5,000 total). If they drop out of school or are married, all subsidy stops. They must learn to use debit card (absolutely no credit cards or loans)
Lastly, when they graduate from college - They are treated as an independent adult. They must find a job and move out. If they stay with us, we charge monthly rent which goes up 1% each month. We suggest to them to keep a minimum of $1,000 emergency fund, keep investing in Roth IRA each year, buy level-term life insurance, and start saving up to buy a better used car.
So far, none of my kids have ever borrowed money to buy anything (credit card, car, student loan, etc.).
Our kids know better than to ask us for money. But if they do, I would not lend any money, simply because our relationship would change. If we refuse, we would offer suggestions, perhaps to find a cheaper alternative, sharing, saving up to buy, or not buying at all.
We would give money if life/death issues or medical emergency is invloved. I may, someday, give them 20% down payment to buy a mortgage, but that have to prove to me that they have 6 months of expenses in emergency fund.
I have taught my kids how to earn income, and not to become welfare kids. By the way, I learned many of these ideas from Financial Peace University ( www.daveramsey.com ).