In the last few years, my wife and I have invested small amounts of money in peer to peer lending. It offers far better interest rates than regular bank savings accounts. What an eye-opening experience! Harmoney, one of the companies we have loaned money through gives quite a lot of detail about potential loans. These details help lenders decide whether they want to loan to a particular person.
One that stuck out to me was a young woman who wanted to borrow thousands of dollars to go on holiday with her family. Apparently, the family had been planning a get-together for some time. Despite her good income, and the fact that she was living at home with parents, she had not been able to save for the holiday, and was asking to borrow the money instead at the exorbitant rate of 40%.
We choose only to lend to people who meet a number of strict criteria, so needless to say, this woman received nothing from us. However, it did get me thinking about the importance of passing on good financial sense to my children. How can parents help their children avoid the many pitfalls in managing money?
A great introduction to this is in the book Raising Financially Confident Kids by Mary Hunt. For me, the best part of the book was the salary structure she introduced to her family. When her children reached a certain age, they were given a monthly salary. This salary was designed to cover some of the items she and her husband used to buy for their children. Each year, the salary was raised. The raise would be commensurate with the child’s ability and the new responsibilities he would have in the new year.
There were a few simple non-negotiables. For instance, absolutely no loans. Even if the child had the money at home but not with them. 10% of the salary had to be put into long-term savings and 10% was to be given away. Purchases had to fit with family values. Aside from these few rules, Mary took a largely hands-off approach, and let her children make decisions and reap the consequences.
One disadvantage of the book was that there was no specific plan of attack for what a child would have to use their salary for each year. So this is something readers have to work out for themselves. For those of you interested here is a model first-year salary plan we have come up with for our eldest.
First Year Salary Plan 2020
Goals
The goal of this plan is to assist and teach Grace to grow gradually into an effective money manager who is not controlled by money, but rather uses money to provide for her needs and use it generously for God’s kingdom.
Commencement Date
The commencement date for this plan is January 2020
Salary
The monthly salary will be $35 per month. This will be reviewed annually, with the next review when Grace turns 11 in 2021.
Mandatory Disbursement
1. Giving: Every month Grace will take 10% of her salary and place this in her giving jar. When this jar reaches a total of $20, she will decide where or who to give the money to with guidance from Mum and Dad.
2. Long Term Savings: Every month, Grace will take 10% of her salary and place in her long-term savings jar. The savings will accrue throughout the year, and once per year be placed into the bank of Dad where she will receive a generous rate of interest.
Responsibility List
In 2020, Grace will be responsible for paying for the following things:-
Clothing
- Footwear
- Socks
- Underwear
- Hats
- Hair ties
Presents
- Birthday parties
- Family presents
Entertainment
- Non-family entertainment / treats
This list will be reviewed annually (or sooner if necessary) and added to.
Rules
While Mum and Dad will retain a hands-off attitude regarding spending choices, there will be a few rules that you must abide by.
- You must abide by the mandatory disbursements listed above
- You may not buy for yourself or anyone in the family anything that is against our family values for children. These items include, but are not limited to:-
- Mobile phones
- Other electronic devices
- Immodest clothing
- You may never ask for an advance on your salary, nor are you allowed to borrow money. If you do not have your money with you, you will not be able to buy something.
- You must keep a written spending record of everything you spend money on.
Infractions
Failure to complete your family responsibilities (jobs), failure to abide by the rules for your salary, or disobedience and disrespect may lead to fines. Fines must be paid by the due date or reduction in salary may occur.
Graduation Day
Grace will graduate from her salary 3 months after she has completed her schooling.
Signatures
Mum and Dad: _________________________
Child: _____________________
Date: ___________________