YNAB You Need A Budget

[catzmeow]

I was examining the budget on YNAB the other day when my 12 yr old wandered into the office and asked what I was working on. I told him I was paying some bills and going over the family budget. Instead of looking disinterested, he said, "Well, if you ever need any help with that, I could help you... if you want." (Which, coming from him, means, "I'm curious. I want to know more but I'm not sure if it's okay to ask.")

I thought for a minute, and then I remembered a conversation that I'd had with my father when I was about his age. He talked candidly with me about a money issue that I didn't fully understand at the time, but I felt really grown-up and special to be part of the conversation. So I invited him to pull up a chair and sit down. I explained to him briefly about the idea of a zero-sum budget, that every dollar should have a job. I explained the implication of taxes, that a salary of $48k a year doesn't mean you can spend $4k a month. I gave him some rules of thumb that I use - that for every $1 of take-home pay, $0.50 will be used for "needs," $0.30 for "wants," and $0.20 for "savings." I also showed him that sometimes those categories can overlap a little bit. I let him see some of the charts and graphs on YNAB and showed him how the budget helped keep us focused on our goals. The best part? He was totally engaged and interested.

(Of course, I prefaced this entire conversation with: "This is personal family financial information. You can talk about it with me or Dad, but you understand that you aren't to tell anyone else about what type of accounts we have, how much money is in them, or anything like that, understood?" He understood.)

He wants to keep learning about finance. And I really want to teach him. I'm just looking for any advice, pointers, or systems that others have used with their own kids (or that maybe your parents used with you) that helped you develop smart money habits and attitudes. He's an avid reader, so any books about money for teens would be great, too. Anything you can suggest, I'd be happy to hear it.

[brown685]

When I was about that age, I worked with my dad on scenarios for paying the home mortgage.

When you look in detail at a home amortization schedule over 30 years, and you begin to see just how much interest you are paying, you begin to really understand debt.

If you have a mortgage or are planing to buy a home, then it would be a good time to work with him through all of it. If he can use excel to do the calculations, ask him to run a scenario of the mortgage and how long it would take to pay it off if you increased the monthly payment by $100, or if you doubled the payment this month. Or if you increased/decreased the interest amount.

James

[shandsh]

I am probably guilty of actually over-communicating with my kids about our money and our budget but that's because no one ever talked to me about money when I was a kid. Mine are 14 and 12 and they are on a weekly salary (allowance) so they can learn to manage their own money. I have shown them my paycheck stub so that they see what I make, what I pay in taxes, insurance, etc. They have sat down with me and watched me budget the money so they understand how much our bills cost and why I can't buy them $100 jeans when there is only $100 in the clothing allowance for the family for the whole month and they don't get it all! If they want $100 jeans they can save their allowance for 5 weeks and buy it themselves.

there are tons of articles and books out there about talking to kids about money. There is even a special program from Dave Ramsey designed just for kids and high schoolers.

[xraymd]

Greetings, catzmeow, and how great for you and your son that he is interested! I remember tutoring math to indifferent kids except for when I would get to the math of finances part. THEN the young entrepreneurs sat up and took notice!

I did not have my own kids and cannot tell you what's out there now, but I definitely recall my dad making special trips to the bank with my brothers and me (now there is online banking so it may not be the exact same thing) and made a big deal out of teaching us that of the allowance we earned, no less than 50% was to go into our passbook savings. These weekly trips really demonstrated to me the power of setting money aside and letting money sit. What further and later became meaningful to me was for my dad to teach us about how credit cards worked and why we did NOT want to use them to finance stuff that ended up costing us interest. He drilled into us that we must be prepared to pay off the card with every cycle, and that they weren't free money. It was illustrative to be shown what happens with interest owed. And an interested kid is going to quickly pick up on this. Good habits start early.

Didn't Jesse just say something about how he read Financial Peace or something like it at age 14 and how he learned to hate debt before he ever even had any? And just look where he is today . So I am betting that your son is poised to be truly resourceful and you are right on the verge of introducing him to the wonderful world of keeping control of the flow of money through understanding how it works. I will watch this space for further reports. How exciting!

xraymd

[blarg]

Discuss supply and demand, interest, and mainly opportunity cost!

My parents did from a very young age and I thank them for it every day.

[catzmeow]

Thanks for all the great suggestions! Maybe I should let him read Financial Peace now. Great idea to show him how the mortgage works. We talked about compound interest a little and how saving a little now can earn you a lot in the future, but I didn't think to show him how paying a little MORE now on a large debt can save you lots in interest payments. I'll do that I guess the key is just to keep the discussion open and ongoing!

[blarg]

When I first started a savings account (I was 6) my parents were giving me an allowance. I had choices with my money. I could either put it in savings, and if I didn't touch it for two weeks they'd match it, or I could spend it straight away. I'm pretty sure the matching was a way to exaggerate interest so I could see it happening with my kid-sized attention span. I always had savings growing up and from that point forward.

I think the matching stopped when I was 10 or so. By then they had opened a mutual fund for me as well as my savings account.

[mia.m]

I started an experiment w/ my now-13-year-old about a year ago and it's working great! I signed him up for a free student checking account, complete with debit card, at our credit union. I automatically transfer his allowance there every monday ($6.50 / week -- half his age). I told him from the get-go that if he lost the debit card, overspent on it (if he were to overspend, the money comes out of his savings account), etc. that we'd end the experiment.

A year later we're still doing it, and we're both happy with the arrangement. I don't have to search for / get the exact amount of cash every week and he has not lost the debit card or overspent at all. In fact, he enjoys saving up the money in the account and then buying something with it. When I look at his account, I see a fair number of tiny charges for things like slurpees at 7-11 or fries at mcdonalds that he gets when he's around town w/ friends, but that's OK... he still saves most of it. When he gets his first job and has a "real" amount of money coming in, I plan to set him up with a copy of YNAB and teach him how to give every dollar a job. We could do that now, but there's really not much to work with, so I think that can wait.

[tallison]

I gave him some rules of thumb that I use - that for every $1 of take-home pay, $0.50 will be used for "needs," $0.30 for "wants," and $0.20 for "savings."

Can you elaborate on what you define as Need/Want/Saving?
Is Savings just a basic account or is this divided into 401/IRA/529 accounts and then something else for basic savings account type savings?

[mms]

What a great topic. I just posted about one of the systems we use for our kids to track and budget their money - before I read this thread. So see my post under 'Budgeting for Kids" for more information.

I would also say that we have been very open about budgets and household expenses with our kids over the past four years. It began when we started getting out of debt. My husband and I decided that the kids needed to be aware of our situation so that they could better understand the choices we were making about spending. At that time the kids were 12, 10, 7 and 4 - so the information was limited and age appropriate. BUT it did start a conversation about money that we have continued. All our kids have had savings accounts since they were about 2 years old. We take them to the bank on a regular basis to make deposits. We have taught our kids to keep track of the money they earn, and show where it is allocated. Most of this is done just on paper - but our oldest son is learning to use YNAB. I just set up a spreadsheet for our third son to track his savings account. He was so fascinated with the language of the spreadsheet - and was pretty sure he had it all figured out just from watching me.

This openness about money has had its ups and downs. One down has been the conversation that starts like this, "Now that we're debt free, can you buy me a ___". Mostly it's been good for our kids to know OUR limits of what we can do for them. We have a small income spread over many people - the liberty for extras is limited. This has been good in that it has taught our kids the necessity of saving and of their need to work for the extras they want. Our oldest son started pet sitting when he was 12, he now has a small neighborhood lawn business and earned about $3K last year. This has freed him to buy the cameras, computers and even an iPhone that he wanted... the other kids are budding entrepreneurs as well.

We listen to Dave Ramsey on the radio a lot. Our older kids did the youth version of his financial peace. We teach them frugality and cost comparison by example. We make spending decisions together. My next step is to bring the older two kids into the budget process a little more. They know the YNAB lingo and are familiar with the spreadsheet. I love to shock them with the pie chart reports that show just how much we spend on food...

Anyway - my best advice is to follow their lead on how interested they are when you are just beginning to talk finances. But the bottom line is that our kids need real preparation in personal finance before they head off to college. Starting the lessons early means that they can make a few financial mistakes while they are still in the safety of their home - and before the consequences are very severe.

[catzmeow]

I gave him some rules of thumb that I use - that for every $1 of take-home pay, $0.50 will be used for "needs," $0.30 for "wants," and $0.20 for "savings."

Can you elaborate on what you define as Need/Want/Saving?
Is Savings just a basic account or is this divided into 401/IRA/529 accounts and then something else for basic savings account type savings?

tallison - Well, generally I define needs as: housing (including utilities), clothing, groceries, medical expenses, all forms of insurance, and transportation. Wants would be: gifts, hobbies, subscriptions/memberships, entertainment, meals at restaurants, and vacations. When talking to him about savings, I told him 50% of savings (10% of income) has to go toward retirement - more is great, but no less. The other 50% of savings is divided between long-term investments and a 529 account. I also showed him how categories sometimes overlap. We have a vacation savings fund, but it comes from the "want" category. We also are saving to pay cash for a new car, but this comes from the "want" category too, instead of "needs" or "savings." I generally consider transportation a need, but that is more for gasoline, vehicle maintenance, taxes, etc. We don't really NEED a new car, the old one works fine, but we want one. Same for clothing - I told my son that sometimes we have to use judgment in the categories - do you NEED a new pair of shoes because the ones you have no longer fit or are worn out, or do you WANT a new pair of shoes because they look nice?

But these are general categories and there are certainly some areas where what I consider to be a "need" someone else might consider a "want," (like high-speed internet, some people don't have it or consider it necessary.)

[catzmeow]

mia.m and mms, thanks for the ideas! My son has a savings account at the local credit union and we could definitely get him a checking/debit card set up! I think that would be great. We don't do an allowance exactly - but he does earn money for chores and grades. We've said school is his "job" right now, and so he gets $5 dollars for each "A" grade. We also have a chore chart where he can earn a few bucks for each time he gives the dogs a bath, washes the cars, rakes leaves, clean a bathroom, etc. All of that is contingent on him keeping his own room clean and clearing his plate after meals. He can't earn money for extra chores if he isn't picking up after himself on a daily basis! Report card months generally yield about $50 for him, any other month is more like $10 or $15.

We've had a few more casual chats about budgeting since the first one. He has watched me use YNAB a few times and I've showed him some areas in the budget that help us prepare for expenses that aren't monthly (like semi-annual property taxes and annual gym membership.)

What I'm thinking is this: Maybe we'll get him the debit card, (with the caveat that if he overdrafts or loses it, it's gone) and let him set up YNAB to track his spending and saving. It's probably good for him to get in the habit now!

[blarg]

I'm sure that many of you won't like this idea, but my parents got me on as an additional card holder on a credit card in their name when I was 16. The idea being that I'm going to get exposed to it in the real world so why not give me a bit of supervision while I learn how to use this new tool?

Worked well for me.

[rollercoaster]

I'm sure that many of you won't like this idea, but my parents got me on as an additional card holder on a credit card in their name when I was 16. The idea being that I'm going to get exposed to it in the real world so why not give me a bit of supervision while I learn how to use this new tool?

Worked well for me.

I was an additional cardholder on my parent's credit card, too. Mostly for the year I lived away from home for school. I didn't treat it as my credit, though. I still called home to ask if I could use the card when I needed/wanted to use it. It was easier for them than having to drop what they were doing to go to the bank to deposit money to my account if the need arose. I probably only used it a scant handful of times, if I recall correctly.

[xraymd]

I am thinking back through the mists of time and am sure that I too was made an authorized user on my parents' credit card - but my parents knew me and had no doubt (and they were right) that I would literally rather leap from a cliff than ever abuse one penny of the privilege. They taught me about both the benefits and the responsibilities of handling credit (they paid the card off every month) and made it clear to me that I was being handed a giant responsibility because their good name (their credit score) would now be tied to my activity. You can believe that I would not ever use the card for anything for myself unless I ALREADY had the money to pay for the purchase. The card was just another form of (finite) money and felt as significant to me using it as if I were directly parting with bills and coins. My parents really did a good job of making sure I knew what using the card meant to my (and their) financial health.

But they had to also know who they were dealing with. I am sure if I showed the least propensity to being casual about money or guarding their good name, I am certain I would not have been given the opportunity to learn. There was no strong reason at the time to let me learn with their credit, since this was before rewards cards, but I just think they were smart enough to have figured out that I would be better off knowing how to use the tool.

Maybe they were only semi-smart, though - my dad taught me to drive and used to have me go 90mph on the highway so I would not be afraid of speed. Um, maybe *that* wasn't the wisest thing he could have done .

xraymd
Vroom, vroom!! - she of the erstwhile Buick Apollo 350 V8 and already a leadfoot at age 16