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Do you pay your child an allowance?
Our continued focus on kids and money during Credit Union Youth Month!
To allowance or not to allowance…. that is the question. Whoever you ask, you’ll get a variety of viewpoints on whether giving our children an allowance helps them become better money-managers. Some parents give their children a fixed amount each week, some give allowances for certain chores, and others don’t believe in giving any sort of allowance at all.
For instance, personal finance expert Dave Ramsey doesn’t recommend giving kids fixed allowances, but instead believes in paying “commission.” By paying at the completion of each task, children can control how much they earn, and see the immediate payoff of a job well done.
Allowance as a Teaching Tool
One study showed that while 90% of parents gave children an allowance based on chores, only 80% talked with their children about money management. As a parent, teaching them to be responsible with money should be just as important as teaching them responsibility in other areas of their lives.
An allowance gives you the opportunity to give your child some experience with money. It allows him or her to see how choices have consequences and plan for the future. And perhaps most importantly, it gives kids a chance to make mistakes while the stakes are relatively low. When their own money is at stake, they’ll quickly learn how to research the things they’d like to buy, and become more informed consumers. These lessons are far less painful when your child is buying a pair of sneakers or the latest toy craze, instead of their first car or home.
Learn the Basics, and Pass Them Along
Many of us are less vocal about financial conversations with our children because we’re not confident about money ourselves. If you need a little help, you can learn some of the basic financial concepts to teach your kids in this informative series of podcasts from Joel Chrisler, host of the Internet radio show Real Life 101.
Podcast: What Parents Should Teach Their Kids by Kindergarten
Podcast: What Parents Should Teach Their Kids by Middle School
Podcast: What Parents Should Teach Their Kids by High School
Here are some other ideas for raising money-savvy kids:
- Teach them to budget in age-appropriate ways. Use a three-jar system to help your child make saving, spending, and sharing a regular habit. If your child is ready for his or her own savings account, you’ll receive a Moonjar Moneybox when you open a Mid Oregon Children’s Account.
- Consider matching their savings. Some kids spend every cent they have. If you struggle to get your child to save, consider matching-dollar-for-dollar everything they deposit in their savings account. Then celebrate together as their savings grows.
- Involve your kids in family budgeting. Set a savings goal together, such as a family vacation or a new play structure for the back yard. Come up with a fun way of tracking your savings (such as a poster, whiteboard, or even a model made of Legos), and discuss ideas for how you can achieve your goal faster–whether by reducing your expenses or increasing your earnings. Children can help by collecting cans, house- or pet-sitting, or helping neighbors. Everyone can help by finding ways to reduce grocery and utility bills, clipping coupons, and setting aside a little extra from their birthday money or tax refunds.
Start Small with Emergency Fund
Emergency Fund- Start Small, Think Big!
Many people wonder how they can build an emergency fund when they’re trying to pay off their debts. It isn’t as hard as you might think. The strategy is to start small, change a few habits, and change your mindset.
If you’re starting from scratch with your emergency fund, begin by saving $1000 (or $500 if it would take too long to get to $1000) while paying the minimum on your credit cards. When you have that emergency fund started, turn your focus to your credit card debt and pay more than the monthly minimum. Once the credit card debt is paid off, go back to building your emergency fund.
Alternating Payments & Deposits
If your credit card debt is very high and is creating extra stress, you might try alternating the extra payment every other month. The first month, add to your emergency fund and pay the minimum on your credit cards. The next month, pay more on your credit cards and skip the deposit to your emergency fund, etc.
Ideally, you want three to six months of living expenses in your emergency fund long term. Pay off those credit card debts, and get started on that ideal emergency fund.
Getting Started
Here are five ways to boost your emergency fund and change savings habits for life:
- Pay Yourself First! Treat savings as a bill. Figure out what you can afford to save each month and stash away $75, $50, $25, or even $10 a month. No matter the amount, it adds up and can become habit-forming. As your financial situation improves, increase the amount.
- Live one raise behind. When you get a raise, don’t begin spending more. Instead, apply the extra amount to your emergency fund.
Use Technology to Your Benefit
- Automate it. Set up an automatic transfer to your emergency funds account. When the credit union receives your direct-deposited pay check, you can have a portion of it put directly into your savings or emergency account. Out of sight, out of mind, but you know it’s there if you really need it.
- Give savings a garage-sale boost. Go from room to room in your home and purge stuff you no longer want and need. Then schedule a garage sale. It’s Spring here in Central Oregon, or “garage-sale” season! Both your house and your savings will look better.
- Think of it as a life jacket. If you can’t find that initial spark to get started, ask yourself how you’d pay your bills if you lost your job tomorrow. Having an emergency fund will help you keep “your head above water.”
Remember: At Mid Oregon Credit Union, we are ready to help with all your savings needs. Call us at (541) 382-1795, email us, or visit one of our 7 Central Oregon branches to set up short-term and long-term savings vehicles that fit your needs. Or visit www.midoregon.com for more information.
Start Your Financial Journey With a Map!
A Journey Without a Map
To gain control of your finances, it’s important to set specific financial goals. But what does that mean? It means having a plan when you start your financial journey.
Here’s an example: If you simply say, “I need to pay off my credit card debt,” you’re less likely to reach your goal. In reality, you have just made a wish, with intent and desire, but nothing to get you any closer.
We readily recognize this in other areas of our lives. If we are taking a vacation through an unfamiliar area, how many of us would just jump in our vehicle and go. We would use GPS, grab a map, or at least ask someone for directions. And wouldn’t we also figure out if we have enough fuel, and if the car was able to make the trip!
Set SMART Financial Goals
Of course you would. So, to achieve your financial objectives, you need more. That’s why at Mid Oregon we recommend you start with setting SMART financial goals.
We’ve created a short video on setting SMART goals. Take a look and start your financial journey the right way. You’ll be glad you did!