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Category: Using KidsSave

Opportunity Cost

Opportunity Cost

Making decisions can be tough for kids.  Especially when they’re confronted with two very appealing choices.  I can go to my friend’s sleepover birthday party or attend the premiere to the new Harry Potter movie with my family.

If they choose to go to the sleepover, they’ll be able to hang out with their friends and stay up late.  On the other hand, if they go to the movie, they’ll be a part of an elite group that has insider scoop on the popular new flick.  The choice they do not pick is the opportunity cost of getting the other.

As parents, we want to guide our kids to think through their choices without making the choice for them.  And as difficult as making these decisions can sometimes be, opportunity cost teaches our kids that they can’t have everything they want and that life is full of trade-offs.

The Money Connection: Consider a child who has just received $5 in allowance.  He could spend the money now on hot wheels or he could put his money in his (KidsSave) account and earn interest on it.  Of course, the benefit of choosing the interest isn’t as concrete as the benefit of choosing the hot wheels.  After all, waiting for interest to accrue is not as exciting as playing with a new set of hot wheels right now.

But if we can begin to get our kids to reflect on how the money choices they make today can ultimately benefit them later on, they’ll be better prepared to take on some of the choices they’ll be confronted with one day.  Things like, should I take advantage of my 401(k) plan? or should I set up a (Roth) IRA?

In addition, teaching our kids about opportunity cost helps underscore the difference between needs and wants (do you really need those hot wheels?) and can help reinforce delayed gratification.

The Knowing

The Knowing

Parents know…life can sometimes be hectic with kids.  But something as simple as establishing routine can help life run a little more smoothly and efficiently.  When kids know what to expect, they feel more relaxed and in control.  And because of their predictability, dinnertime-, homework-, and bedtime-routines can actually give kids a sense of mastery in handling their own lives.

A tangible way to involve kids in routine is to post a large family calendar in a prominent location.  With the help of your kids, fill in the important weekly events:  Monday at 4:30 – piano lessons; Wednesday at 3:30 – soccer practice; Saturday at noon – Grandma visits, etc.  Each morning, discuss the daily happenings.  As your kids get older, have them fill in their own weekly events.  Knowing helps kids learn how to set up and be in charge of their own lives.

And, a huge added benefit, because routine helps maintain consistency in parental expectations, it helps to reduce potential power struggles.

The Money Connection: Kids love routine.  It gives them a sense of order and predictability.  When they know what’s going to happen, they can act accordingly.

When it comes to money, an allowance is a perfect tool to help establish this sense of order and predictablilty.  One of the keys, however, is that kids know how much allowance they receive and that the allowance gets paid out routinely (KidsSave can help with this).  Knowing how much money they have each week/month allows them to make better financial decisions and making good decisions leads to a sense of confidence in their ability to handle money.  Besides, learning how to budget at this early age is best done when kids have a predictable amount available to spend.

Routine also comes in the form of expectations for the allowance.  When kids have consistent responsibilities for their allowance, they know their choices and can act based on those choices.
This knowing helps kids learn how to effectively manage their money.

It may take a little time to get the allowance routine established, but when it does happen, your kids will be learning skills that will last a lifetime.  Good to know.

How Does a 15-year old Save for a Car?

How Does a 15-year old Save for a Car?

Ryan just bought a car. And she’s a beauty, too. 2002 baby blue (uh, metallic blue) Toyota Prius with only 57,000 miles. Owned by a 91-year old grannie who used it mostly to drive to church and back. No kidding. Problem is, Ryan can’t drive it; never mind he doesn’t have his license. He barely has his permit. And taking an online course to get his permit happened after he bought the car.

How does a 15-year old with no permit end up with a pretty snappy car sitting at the bottom of the driveway? It starts with a plan.

When Ryan was 11 years old he got his first job. He delivered papers once a week after school. Most of that money went directly into his savings account. Although he was responsible for all his discretionary spending, there wasn’t a whole lot he spent money on. John and I customized his interest rate (KidsSave was a great help in this area), so that the more he saved, the more he ended up with. This was a great incentive. But an even greater incentive was the offer his grandmother gave him. She would match him dollar for dollar on his first car.

Over the years he added soccer reffing, teaching math centers, and yard work for our neighbor to his list of jobs. He also did the occasional lemonade and root beer float stand. Then there were his buys and sells on ebay. Again, most of it went into his savings account. Although I have to mention here, just in case you may think he never enjoys spending money, he bought his own $350 mountain bike, an ipod touch, golf clubs and other pretty pricey items. He knows when to save and he knows when to spend.

But my main point is that, when you have a goal in mind, when you know what you want and have figured out the steps to get there, it’s easier to keep your eyes on the target. That’s the power of goal setting. It keeps us focused. Even when you’re eleven years old.

Four years later the perfect opportunity presented itself. We live near a community college which doubles as a used car lot on the weekends. Nathan and Ryan, just playing around on the computer one day, discovered that a used Prius would be on the lot. A Prius is exactly what Ryan wanted. He’s my little eco-friendly kid.

The stars seemed to be aligning for him. About six months ahead of when he had planned on buying a car, it was an opportunity not to be missed. An opportunity on a variety of levels. This was his first major negotiation and he wanted to do it himself. So John and I prepped him. He needed to know exactly what his maximum offer would be. Start low, move up.

The owner, through her grandson, was asking $10,000. Ryan went in at $8800. They came back at $9200 which was exactly what Ryan had hoped. He had just made his first deal.

After registration and taxes, the total came to $9796. Split with his grandmother, Ryan’s share was $4898. He paid in cash. That’s how a committed 15-year old buys his first car.

Teaching our kids to set personal financial goals when they are young is so important. It starts with the little things…a video game then a bike then an ipad. They learn it’s possible and begin saving for the bigger things. To see how it’s done, check out this video: