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Teaching your child monetary maturity: Make sure they have some skin in the game

Feb 27, 2020 | Thomas Smith


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What having four sons has taught me about teaching fiscal responsibility to teenagers and young adults.

Thomas Smiths four sons hugging and smiling

Many of you know that my wife, Pam, and I have four sons, ages 23, 21, 19 and 17. It seems relatively uncommon today to have four kids of the same sex, close in age—occasionally we come across a family with five or more children, but not often. Our oldest is an employed Baylor graduate, we have two in college, and one is a junior in high school.

Recently, we were reminiscing about how much we enjoyed Christmas with our sons, and it occurred to us that we crossed a milestone this year. This Christmas, the boys—with no prompting from us—purchased us a Christmas gift with their own money. I received a Fitbit and Pam received an elegant wine chiller that matches our kitchen motif. Not only were the gifts relevant, but they were not inexpensive! A surprise trifecta.

How did this happen? Whose idea was this? Candidly, I am absolutely delighted that they have taken this step into manhood! I knew this day would come, but I thought it would be several more years before this sign of “adulting” appeared. Since I am in the financial services industry, many of our friends have asked us about our philosophy regarding kids and money over the years, and I’m pleased to be able to share some of our thoughts on how to teach your teenager or young adult to be responsible with their money.

Teenagers and cars

Our philosophy on cars has evolved with trial and error. For instance, our kids did not get the new car many of their peers received on their 16th birthday. Instead, each son drove the 2002 Toyota Sequoia, which had already been my car for 10 years at the time our oldest, Logan, earned his license in 2012.

When it came time to get their first “real” car, the Sequoia was handed down to the next in line. During Logan’s junior year of high school, we let him pick a used car to purchase (subject to our approval). Since each of our sons was required to get a job in high school, we provided 75% of the purchase price, while Logan had to provide 25% from his savings. We reasoned that he must have some “skin in the game” to appropriately take care of the vehicle. So Logan “purchased” a 2007 Tahoe, Dylan selected a 2013 Ford F-150, Caden chose a 2015 Jeep Wrangler, and Ethan will be a game-time decision. But keep in mind, each son started on the 2002 Sequoia, then graduated to a “new” used car, of which he paid 25%.

Allowances

We did not provide our children with an allowance; instead, we paid for gas, insurance and major repairs on their vehicles. We insisted that each son use the money he had earned for entertainment expenses, fender benders and traffic tickets. This convention continued into college, during which we covered the majority of the expenses for their college experience, but insisted that each son cover the “fun stuff,” and mistakes with their own money.

These two buckets—fun stuff and mistakes—help exemplify some important lessons for a young adult first learning to manage their money. By funding their own entertainment, they learn what is and what isn’t worth spending their own hard-earned dollars on. And by paying for their own mistakes (like a traffic ticket, broken lamps or holes in drywall) they learn there are consequences for their actions.

Covering their own deductibles

One lesson that we learned the hard way as parents was that when we simply gave an expensive item like an iPod touch (or later an iPhone) to one of our sons, there was a good chance it was going to wind up in a pool or with a cracked screen. In accordance with our rule that the boys pay for their own mistakes, we made them pay the deductible to get it repaired when that happened, but we discovered that when we asked them to contribute to the initial purchase, they tended to take much better care of the product.

Skin in the game

Well, the 2002 Sequoia finally bit the dust under Ethan’s tenure, but it got four sons through the formative years of driving, taking the brunt of fender benders, spilled drinks, sweaty sports gear, failed inspections, broken taillights, cracked dashboards, and a handful of minor repairs. In Spring 2019, we retired the Sequoia, and purchased our neighbor’s used 2013 Tahoe. Logan got the “new” used Tahoe, and Ethan scored Logan’s 2007 Tahoe. Now that Logan is a college graduate who has been driving for seven years and is gainfully employed, he can go out and purchase that fancy new car on his own dime. No doubt he will take care of it because he has learned the value of money, and how to take care of a vehicle.

Being a parent is the hardest job, I have ever had—and still is. By insisting that our kids have some skin in the game, we were able to boost their monetary maturity, teaching them about the value of money and hard work. If you have some techniques that have boosted your kids’ monetary maturity, I would love to hear about them. Please contact me with your strategies.

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Wealth planning