My son recently turned 18, so we transferred his UGMA (uniform gift to minors account) into his own name. But with money comes responsibility. I told him that he must now balance his checkbook and debit balance each month. He replied in quintessential teenage speak that, “kids now just look everything up on line. No need to write anything down, or keep a separate ledger. ”
I agree that the internet has revolutionized how we store and track data, making it easy and quick to transfer sums of money and review our monthly statements. But it has also contributed to less awareness of our overall spending patterns. Credit and debit card expenditures also make spending seem more remote. The further removed we are from our transactions, the less “real” they become.
So I sat my son down and gave him a tutorial on the basics of personal financial accounting. We downloaded Quicken on to his computer. Whereas, the investment account that he has can be automatically downloaded from the mutual fund company to Quicken; the money market account could not, so we determined that he would manually enter those transactions.
Checks Would Need To Be Entered Just After They Were Written
Checks would need to be entered just after they were written, but debit expenditures could be inputted by category once the monthly statement came in— (as long as he kept sufficient cash in the money market account to cover a few months of his expenditures). He would be responsible for transferring money, as needed, from his investment account to the cash account (money market account).
Having A Separate Accounting of The Checks
I stressed the importance of having a separate accounting of the checks to ensure that they were ultimately received and cashed. He would then be able to determine which check was sent to whom and thus track them down as well as ensure that no checks went missing. (This would be tough to do if he never recorded the transaction anywhere).
His monthly debit charges were primarily comprised of three categories– food, gas, and flying. My son got his pilot’s license last year, and has a passion for flying. He belongs to a flying club at school and spends his own money on this expensive hobby. As we began to add up the monthly totals for these categories, he mentioned that he might not want to know how much he spent on flying. My comment to him was: “That is exactly why you need to add it up. It is of utmost importance that you understand where your money is going each month, so that you don’t blow through your entire savings.”
Spending Patterns Ensures A Sustainable Budget
This dovetails with my
recommendation that all parents make their young adult kids pay for more
expenses as they get older. This enables them to slowly gain awareness
of the cost of living and hopefully begin to budget for the future,
when they have a full time job. My son is responsible for a portion of
his college costs, as well as his personal expenses including gas and
car maintenance at college. I give him an allotment for food which, if
he does not fully spend, can be used for other things. The amount is
less than what he would spend for a meal plan at school.
Once we went through the basics; it became clear to him that this monthly exercise would take no more than a few minutes.
This was our first lesson, and I will surely need to follow up monthly until the Quicken “training wheels” can come off; but my experience reminds me that the basics are not necessarily intuitive. Making kids responsible for their expenses incentivizes them to get jobs and enables them to value their human capital and the money and quality of living that it can provide. Additional time with our children to teach and reinforce these skills, is key to their financial independence.