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Author: xraymd Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 19338  
Subject: Re: Teaching kids to budget Date: 5/19/2001 11:09 AM
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Greetings, LGPlott, I don't have kids but I do remember how I was taught to budget and it still makes sense to me:

My father taught me that the allowance I received weekly was my "paycheck" and that like any paycheck, the amount had a gross and a net. I didn't understand those terms at age 7 but I learned to quickly understand that not every penny of money I earned was mine to keep - or to spend. For every $1 I earned, 25 cents had to be deducted by my father towards savings. I learned fast to think that $1 earned was NOT $1 received - it was 75 cents and that 25 cents that went off into the ether was really adding up in my bank account. I had a passbook savings account that I kept current with my dad's help and could see the money grow. He also taught me how to save ahead for future purchases (If I wanted a $3.99 Barbie doll he helped me to figure out how long it would take for me to save for it using various increments - should I sock away 25 cents or 50 cents of my remaining 75 weekly net cents? I could see how long it took to get where I wanted and to plan from there). When I was a little older, around 11 or 12, he taught me about compound interest and then I could REALLY understand the advantage of a nest egg!

One of my brothers and I were both very attentive and adherent to these lessons. My other brother was something of a spendthrift despite learning the same things. Those tendencies persist today so I guess you can only do your best but for me, it was super-motivating to learn early about how money worked and, more to the point, to EXPERIENCE those lessons early. I sure did like it when I had $1000 or so in the bank by the time I hit my teens having watched it grow throughout my childhood vs. having it magically appear in my account through none of my own efforts - I had taken to saving another dime or so on top of the already-dedected quarter. The other valuable thing my dad taught me is that it was OKAY to spend so long as I had taken care of paying myself first and I learned to enjoy what I bought without becoming a shopaholic or feeling guilty about parting with a portion of my money.

The figures I've used are from the early 1960's - adjust as necessary for the 21st century - but the concepts are the same. As a side note, I found I loved algebra (which is what you need to understand the formulas for compound interest from scratch, though you don't need to know algebra to get the concept!) and it was fascinating to me when I later tutored mathematics to high school kids that there were certain kids who turned a deaf ear to logarithms and to quadratic equations, but let the topic be finance and compound interest, boy, and were they ever RIGHT WITH ME. (Early enterpreneurship, I suppose :-)) It's never too late to start and I think it's fabulous that you wish your kids to start so early!

xraymd
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