The MoneySmart Family System: Teaching Financial Independence to Children of Every Ageby Steve Economides, Annette Economides
The MoneySmart Family System will show you how to teach your children to manage money and have a good attitude while they’re learning to earn, budget, and spend wisely.See more details below
The MoneySmart Family System will show you how to teach your children to manage money and have a good attitude while they’re learning to earn, budget, and spend wisely.
- Nelson, Thomas, Inc.
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the MoneySmart family systemTeaching Financial Independence to Children of Every Age
By Steve Economides Annette Economides
Thomas NelsonCopyright © 2012 Steve Economides and Annette Economides
All right reserved.
Chapter OneThe 5/50/500 Rule
No matter what age your children are, you will always have a financial connection with them. It starts before they are born and will continue after you die. That connection will be defined by how you view and handle money, and how you train your kids to view and handle money. The flow of cash from you to your children may be a trickle or it may be a torrent. The control of the spigot and the power of the flow should be determined by you, but in many cases, unfortunately, the child controls the tap.
This is a book for parents who have money—any amount of money, from a small amount to a small fortune.
This book is about how we, as parents, deal with our money and how we deal with our kids at every age and stage of life.
You will always be your child's parent. Sure, over time the relationship will change. The first change starts when the umbilical cord is cut. But one cord that will never be cut is the cord of money and possessions.
We really love our kids, and we know that most of you feel the same about your own children. The strategies and philosophies we espouse aren't anti-kid—they are pro-parent and pro-child. We want to equip parents (grandparents, aunts, uncles, and anyone who might regularly interact with children financially) with tools that will help them empower their children rather than enable them.
We are going to base what we write on a few assumptions:
1. All children and parents can learn.
2. All children and parents can learn to work.
3. All children and parents can learn to save.
4. All children and parents can learn to manage money.
5. All children and parents can learn to spend money responsibly.
What we have written is pro-parent, if you define successful parents as those who desire to raise their children to be independent, self-sufficient, and mature adults who can stand on their own two feet financially.
And what we have written is pro-child, if you define successful children as those who want to be independent and self-sufficient adults, able to stand on their own two feet and look back at their parents with a smile of gratitude for helping them to be autonomous.
Unfortunately, this rosy scene is becoming a rare occurrence as many parents are finding it more and more difficult to cut the cord of cash flow to their aging children. We're going to show you how we've carefully and progressively minimized the transfer of funds and how you can too!
Raising Kids Costs and Costs, and Costs Some More
If you've got kids, the experts say you're going to be spending money—and a lot of it. The "experts" at the USDA in their 2010 report "Expenditures on Children and Families" say that we should expect to spend about $261,000 to raise each child from birth through age seventeen ($14,500 per year). Do you think this is accurate? We don't! In 2009, according to the U.S. Census Bureau, the median annual household income fell to $49,777. Meaning that it could take more than five years and three months of your entire gross household income to get Junior through the formative years and ready for college. And if you have more than one child, the situation is even bleaker. Unless you have some sort of trust fund or rich uncle who has left an inheritance, the money you'll be spending on your kids today is probably the money you should be saving for tomorrow—for your retirement.
Throughout this book we'll refer to experts and their statistics. While we like to use these numbers as points of reference, we are very cautious about basing serious life decisions solely on their conclusions—particularly any survey telling us what it will cost us to raise a child for the first seventeen years of life. Here's why we're skeptical.
When we actually dissect their numbers, we have found that they are based on providing a prescribed number of square feet of living space per person, a certain number of cubic feet in a car, a certain amount of money spent at restaurants each month, and an average cost for clothing, food, and health care expenses. In short, the numbers might be accurate if you lived in a major city, paid retail for everything, never shopped sales or thrift stores, bought all designer clothes, and drove a late-model car.
Just calculate with us for a minute. If you're an average family with 1.8 children (according to USDA figures, this alone should cost you $26,100 per year), living in an average city, spending an average amount on food ($200 per month per person × 12 months = $9,120 per year) with an average yearly household income ($50,000 per year—about $40,000 after taxes), you'd be left with $4,700 a year ($392 per month) to spend on cars, clothes, housing, debt, recreation, gifts, utilities, health care, cell phones, cable TV, medical bills, dental bills, and chewing gum. Something simply doesn't add up!
Do you think that the experts are right on the money when it comes to the cost of raising your children?
The Best Things in Life?
Most parents want to give their children the best things in life. But the truth is, if you give your children the best (whether you can afford it or not), they'll be very obliging and take it. It's human nature to receive when someone generously provides. And the more you give, the less incentive your kids will have to work and provide for themselves.
Even if you can afford the very best for your children (because you earn a higher income), what will the end result be, especially if your children never achieve your level of earning?
1. Will they shun your lifestyle for one they can afford?
2. Will they work two or three jobs so they can afford your lifestyle?
3. Will they look for alternate ways to get the things you earned?
4. Will they look to you to continue providing for them?
We've got to honestly ask ourselves: Will giving my child the best things in life truly create financial independence?
The questions we're posing aren't the result of mere speculation. They are based on our experience with our own kids, observations of other families, and from our time as volunteer budget coaches. For many years, before we started our writing and speaking career, we met with families to help them sort out their debt and spending. While reviewing their financial habits, we regularly discussed how much money they were giving to or spending on their children. Usually it was money they could ill afford. We often heard reasoning like, "My children shouldn't suffer and do without because I've made bad decisions," or "I need to give my children the same things that my parents gave me." Does this type of thinking actually help kids become financially responsible?
But we've gotten ahead of ourselves. Before we answer these questions, or get too deep into a subject we're obviously passionate about, we should give you a little background on how we became so zealous about parents needing to train their children to manage money.
How We Started
We are Steve and Annette Economides (Econo me dis), and are the parents of five children. Some of you will gasp and ask, "What were you thinking?" while others will say, "Only five?"
We have worked hard to help our kids grow into financially independent adults. We aren't accountants, stockbrokers, or financial gurus. We're just an everyday couple who found some great ways to transfer financial principles to our children.
We were married in May 1982. Eleven months later our first child, John, was born, and two years after that, Becky came along. Roy, Joe, and Abbey followed. In 1985, right before Becky was born, we put 15 percent down on our first home—a bank repo "fixer-upper." We weren't earning a lot of money at that time. Steve was working as a graphic designer and Annette stayed home with our kids. Laboring together, we were able to find plenty of ways to get the things we needed to transform that house into a home.
We were committed to living within our means, which meant that we'd only spend the money we had saved for specific purchases and wouldn't use credit cards. As our income increased, we continued to utilize our personalized budgeting system (detailed in our book America's Cheapest Family Gets You Right on the Money), which helped us manage all of our expenses and allowed us to pay off that first home in nine years, on an average income of only $35,000.
We looked pretty normal on the outside—a tidy little home with a one-car carport and two cars on the driveway. Steve would leave for work in the morning carrying a briefcase, and the kids would wave from the front window as he drove away. But the inner workings of our home were anything but normal. Because we were committed to living within our means and not using credit, we needed to communicate more with each other, shop differently, research better, and apply more patience than most families our size. Our frugal habits started out of necessity, but eventually turned into a game—a fun challenge where we looked at our lack of funds as a blessing and obtaining deals as the reward.
Some friends started asking us where they could find good deals, and others came to us looking for help in managing their finances. A few years later, in 1990, a man from our church asked us to be trained as personal budget coaches. We learned how to evaluate a family's financial situation, identify areas for improvement, and walk them through a process of paying off debt and right-siding their often upside-down financial condition.
The Pivotal Question
One evening after a coaching session with a couple in our home, our nine-year-old son, John, approached us and said, "When are you going to do financial coaching with me?" We both stood there dumbfounded. We'd never discussed the problems any family was experiencing with him. He'd usually spend his time in another room of the house, reading or playing with toys. We now realized that he'd been listening the whole time—listening and thinking about his own situation. He had seen some of these families go from tears to resolve, and from resolve to joy as they worked to restore their financial lives. He was keenly aware that there were misfortunes and miracles occurring in these families, and they all centered on how they handled money. He knew we cared about these families and that we wanted them to succeed. He wanted us to care about him in the same way.
As John grew from a toddler to a youth, he would help Steve with little projects around the house—building shelves, mowing the lawn, washing the car, and trimming trees (we wanted him to learn to be a working man). We also tried to teach him about money, as some showed up at Christmas and birthdays or when he earned some for doing special chores. We didn't have a plan, because our parents hadn't had a plan that they used with us. We were simply clueless about how to transfer our financial ideals to our children.
When it comes to the topic of preparing children to manage money, most parents don't know where to start. They barely feel competent to manage their own earnings, let alone pass on a "vast storehouse of knowledge" to their progeny. Failing to have financial limits and a plan for transferring financial literacy to their children will cause most parents to unwittingly siphon off much more money than they can afford. And in the end, the spending won't stop—especially if they have created financially dependent adults who will come back home to turn their "nest egg" into a "goose egg."
A System Is Born
After John asked us that question, Steve was motivated to find a way to logically and systematically teach our children to manage their own money. There would be several false starts, several books read or listened to, a few failed attempts, and finally the development of a system that we've used since 1995 with all of our children.
What we ended up developing and testing on our own kids is not only a method for teaching them to handle money, but it also teaches them to have a good attitude as they learn to work, earn, plan, budget, research, and spend wisely. As a result of this system (and our involvement), all of our children have accomplished things that most of their peers have never even attempted. Things like paying for their clothes, recreational activities, sports fees, Boy Scout camps, Boys State, 4-H leadership camps, Christmas presents, auto insurance, and cars (with cash).
We won't tell you that they are perfect in their management skills or in their planning and evaluating—neither are we, for that matter. But we will tell you that the "trophies" from their triumphs far outnumber the penalties for their problems.
As our children have grown older and left home, our front door has always been open to them to come and visit, but they've never used it as a revolving door—moving in after a financial upset. They've stood on their own two financial feet and have become more and more confident as time went on. We're proud of our children and what they have accomplished, and you can experience the same.
Like any well-honed skill, teaching our children to handle money was something that we learned slowly, made frequent mistakes with, fine-tuned, and eventually felt sure enough about that we began to share it with others.
A Message to the Nation
In 2003, after more than twenty years in the graphics and advertising business and several years of volunteer budget coaching with scores of families, we drew up plans to start our own business. We wanted to communicate in writing the many lessons we learned by living frugally and raising five MoneySmart kids. Steve wrote an article about our kids and money system, and it was published in a statewide journal, with very positive responses.
We started writing a frugal newsletter, which has since been retired (now all of those articles appear as part of a membership at AmericasCheapestFamily.com), and within three months we were interviewed by several local newspapers and even on local TV! One year later a producer from ABC's Good Morning America heard about our story, and the following week we found ourselves in New York City being interviewed by Charlie Gibson! Four of our kids were with us (John was working a full-time job and couldn't come), and they were able to tell a national audience about some of the things they had purchased with their own funds by shopping smart. The flood of e-mails and letters overwhelmed us. Our kids validated our lifestyle and proved to the nation that financial training at a young age could produce happy, well-adjusted, money-savvy children. (You can view that interview on our website by clicking the "In the News" tab.)
Since that first appearance on national TV, our children have continued to encourage their friends and millions of families at conventions, in newspapers and magazines, and on TV, radio, and the Internet.
No matter what age, or how many children you have, this book will arm you with information and tools to help you confidently lead them through the money jungle to the lost city of Self-Sufficiency.
Why This Book Is Important
Very few books have been written that comprehensively cover the topic of helping children of all ages to be financially independent. And when we say children, we mean your children or grandchildren from the ages of zero to fifty-five!
We can hear the resounding, "What! Fifty-five! You've got to be kidding!" You're right, we should have been more careful in what we wrote. We've seen cases where the financial dependents were well into their sixties, and their parents were still funding a "child's" habitual overspending. We are going to address every stage of life and how you can help your kids (no matter what age) spend their own money instead of your retirement reserve.
We believe that it is best to start teaching children about working, earning, saving, and spending their own money as young as possible. But if your children are older, don't despair, it's never too late to start—and we'll tell you how. However, you should be aware that any kind of delay might intensify the power of a menacing money rule we discovered.
What Is the 5/50/500 Money Rule?
Many years ago when Steve worked as a graphic designer, a printing company salesman taught him an important lesson about making type changes during the three-step printing process.
Step 1. Back then, a typesetter would print out text for an ad or brochure on photo paper; a paste-up artist would paste the type and any borders, headlines, and photos on an art board. The work would be proofed by someone else in the office and then sent off to the printer.
Step 2. The printer would put the art board on a reproduction camera and take a picture of it on negative film. That film would be "stripped" or taped to an orange carrier sheet or flat, a blue-line proof (like a blueprint) would be made from the negatives, and then a metal printing plate would be burned.
Step 3. Finally the plate would be put onto the printing press and the actual transfer of ink to paper would begin.
Excerpted from the MoneySmart family system by Steve Economides Annette Economides Copyright © 2012 by Steve Economides and Annette Economides. Excerpted by permission of Thomas Nelson. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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