PAY TODAY OR LAYAWAY

The Christmas buying season is here even earlier this year.  We're looking forward to Thanksgiving but the stores already have their sights on maximizing their Christmas bottom line.  Holiday sales are expected to rise 4.1 percent this year.

It seems that our kids just went back to school and the leaves are still on the trees, but the major department stores have already begun their layaway service.  In fact WalMart and Toy “r” Us began a full month earlier this year.

Layaway is a good tool to help you with your shopping and budget.  Using layaway has several advantages – helps you avoid impulse buying, forces you to budget and helps you to avoid getting into trouble with credit card debt.  You can do your own layaway at home with your kids.

In MONEY DOESN'T GROW ON TREES, I teach my Four-Jar Budget System which is saving and budgeting for kids.  Allowance money is divided among the four jars: Charity, Quick Cash, Medium-Term Savings and Long-Term Savings.

Medium-Term Savings is actually layaway at home.  It teaches deferred gratification.  Help your child make a goal to save for.  Go window-shopping at your favorite department store or on the internet.  The age of the child should determine how long the saving should take.  The older the child the more ambitious the goal. Yes, you're teaching delayed gratification, but you're also teaching gratification -   three weeks is a long time to a toddler.  It's a good idea to print out a picture of the item being saved for and attach it to the Medium-Term Savings Jar as an incentive.

When my kids were young we used this method.  You may be surprised to find out how different your kids are from one another.  My son decided he wanted a Walkman – the prehistoric ancestor to the iPod.  My daughter had her sights on a special pair of designer jeans – some of you might be old enough to remember all those commercials  with Brooke Shields – those jeans were all the rage.  

Both kids were certain they knew what they wanted and were patient enough to save up but a funny thing happened along the way.  My son never wavered.  He knew he wanted that Walkman and nothing was going to stop him.  After a few weeks of saving, those must-have jeans no longer seemed so must-have to her.  She decided – and it was her decision – that a pair of regular jeans would be just great.  The logo on the rear pocket wasn't as attractive as it had been.

They both learned valuable lessons.  My son treasured his Walkman for years.  In fact, he took amazing care of it.  My daughter discovered that it might not be so important to have the most expensive item just because it's the trendiest.

As with all good tools you need to do your homework in order to use in-store layaway safely and correctly.  Make sure you read the fine print before you begin.  Putting an item on layaway involves getting into a contract with the store.  Read the rules, payment schedule and fees.  Some stores have eliminated up-front fees.  Others even offer a bonus gift card when your order is paid for. Make sure you really want to buy an item before putting it on layaway.

If you decided not to purchase an item, fees can be costly.  For consumers who don't pay on time or decide to back out, money will be lost [wasted].  Not only will you not get your merchandise, you also don't get your service fees back.  In many cases there is also a cancellation fee.  You will get back any payments you made minus the fees – in the form of a store credit.

Layaway at home or layaway at your favorite stores, it's going to be a long shopping season.  I want you to stay financially healthy.  If the stores are already trying lure your dollars away from you, it is certainly time to make your holiday budget.  After you make your own budget be sure to help your kids with theirs.  Be honest with your budget and be sure to stick to it.  Don't go into debt in the “spirit” of giving.

ALLOWANCE FOR TEACHING

According to a survey by the American Institute of CPAs, parents give their kids an average of $15 a week which adds up to $780 a year with older children receiving more than younger ones.  According to CNNMoney, parents say that their kids are spending their allowance as soon as they get it. That's human nature, isn't it?

Let's take a time out.  Financial literacy is learned and parents need to begin teaching their kids about money early on.  These lessons can start as early as three years-old and continue into adulthood. The fundamentals stay with us for life.

In MONEY DOESN'T GROW ON TREES  I teach my Four-Jar Budget System at length.  This is a system I created when I first began working with kids and families – it really works.  Let's look at the most basic principles.

The first thing to remember is that an allowance is “work for pay” - “work” being a series of age-appropriate chores.  Turn “pay day” into a ritual which means you should distribute the allowance once a week at a specific time. I suggest paying your child $1 for every year of age – for example, a 5 year-old gets $5.

Now about the “jars”, they can be envelopes or even plastic bags but they should be see-through.  The first jar is for Charity.  The second jar is for Quick Cash.  The third jar is Medium-Term Savings.  The last is for Long-Term Savings. Each should be labeled.

Charity is 10 percent off the top of the allowance.  This is how you teach your child the value of giving.  It also opens up a dialogue to discuss your family values.

The balance of the allowance is divided equally among the remaining three jars.

Quick Cash is is there for whatever your child wants to spend it on within the parameters of your family rules.

Medium-Term Savings is for a plan you have made with your child for something that might take three weeks or more of saving.  This is how you teach deferred gratification.

Long-Term Savings is to instill a sense of investment in his own future. I suggest saving for college. As the child grows, this money gets put into a bank account and later into other investments.

Now you have the framework to help teach your child the basics of saving.

Never A Borrower Or Lender, Be ( especially if you are a child!)

An issue facing kids is borrowing and lending. Just as some societies distinguish themselves from the rest of the world by setting up elaborate barter systems, an important element of preteen and teenage custom is borrowing and lending money. You’re not going to change that. But you can discuss it and channel it before it becomes a problem.

One step toward helping your children understand borrowing and lending is to incorporate loans into the Allowance Jar System you’re using. Occasionally, your child will want to buy something that’s “on sale” right now or that it may be a “limited-time opportunity,” like spending when on vacation. The purchase price may not be out of range of their budget – they could easily afford it with four weeks of Medium-Term Savings – but they don’t have the ready cash right now.

But if you loan them the money to buy it, are you caving in and abandoning your system? Certainly not. You can work out a repayment schedule, with just a small rate of interest. After all, you’re not trying to make money off your kids. The interest payment can go into a family vacation fund, for instance. The point is that you want your kids to understand how borrowing and lending work. Charge them a flat interest of 10 cents per week on every dollar borrowed. They will start to feel the bite of interest, and that’s the point.

You can also use borrowing and lending situations to teach your children about establishing credit. If your child repays the loan on time they’ll be eligible for another, perhaps larger loan later. If not…they become a credit risk and won’t be eligible for another loan until they’ve proven their responsibility to your satisfaction.

When it comes to putting these lessons into practice outside the family, one rule changes right away. If your kids are loaning money to a friend, they shouldn’t charge interest. It’s a bad precedent to set between teenage friends. The most important thing to teach your child is that money lending is an exchange that has rules. If they’re going to lend money to a friend there should be a clearly defined repayment schedule. Your teen should discuss with the borrowing friend:  (1) How much money they want to borrow; (2) What the money is for; and (3) When the loan will be repaid.

More importantly, your young lender should know that this transaction is about “money” not “friendship.” The friend may not repay the loan on schedule, for instance. Explain that someone can be your good friend, yet still be irresponsible with money. With a contract (even a verbal contract), clearly understood by both parties, if a borrower fails to keep up their end of the deal, it doesn’t have to spell the end of a friendship. Your teenage lender should make it clear to their friend that there surely won’t be anymore loans available to them. However, another important lesson every lender should know in advance is that they should never lend more than they can afford to lose. Tough lessons, but real life!