"No, we can't afford it."
If you are a parent, that sentence might seem familiar to you. It's usually said by the parent after one of their kids ask for something like an XBox or an IPhone or something else that would otherwise break the household budget. At my house, the source of contention has been my 13-year-old son's desire to have a parrot or some other kind of bird. Not only do I not want the added expense of bringing another animal into a house that already resembles Noah's Ark, but I just don't want a bird screeching in my house all hours of the day and night.
It was a similar conversation that I had with my oldest son a few years ago that didn't totally eliminate the request for high-ticket items, but made him understand more fully WHY we couldn't spend money on some of the things he wanted.
My oldest son, when he was around the age of 15 or 16, asked for money quite often (this was prior to him getting his own job at a local grocery store). He always needed money for something...concert tickets, WWE wrestling tickets, CDs, etc. He always had his hand out for more and more money. For a time, it seemed as though I was paying for all of his dates as well. The amount of money he was asking for was quickly outstripping the $20 weekly allowance I was paying him for doing chores around the house.
I had used the throwaway line "I can't afford it" with him one time too many one day when he replied with "well, WHY can't we afford any of this stuff?" It was at that point that I decided to show him.
I sat down with my son at the kitchen table and placed my checkbook in front of him. I also had a calculator. This was at a point in my life when I was trying to eliminate massive amounts of debt, and money was tight. Just a year earlier, we were worried about having a place to live. Buying an XBox was an extremely low priority.
I told my son how much my paychecks totalled each month. I even showed him my pay stubs. I told him to enter that amount on a calculator. I then read off the amounts of our bills and had him subtract those amounts from our income. He punched in numbers as I read the amounts of rent, gas, electric, cable, phone, savings, prescription drugs, doctor bills...every expense that our household incurred every single month. When we were done, I told him to look at the number that was left.
"Well, there is about $200 left over. That's plenty." he said.
I then reminded him that the $200 was actually divided by two pay periods, so that's actually $100 in miscellaneous money every two weeks. That money was usually used to pay for unexpected expenses like school supplies if he ran out, extra gasoline if the price went up, etc. Our wiggle room at that time was $50 per week. The amount of money he routinely asked for each week greatly exceeded that amount. Whe my son saw that number, I could see the lights go on in his head.
Shortly after that conversation, he took a part-time job bagging groceries at a supermarket a couple of blocks from where we lived. I got him into the habit of saving 20 percent of each of his checks for college. He could do what he wanted withe rest, including saving additional amounts of money.
The purpose of my conversation with my son wasn't to shame him into not asking for money anymore. I still gave him an allowance for doing chores around the house, but he realized that if he wanted something that cost more than the household budget allowed, he would have to save for it. Of course, you can't have a conversation like this with a 7-year-old kid, but you should start teaching kids about how to handle money starting at a point when they are asking you to buy things.
Give the kids an allowance each week, but make them work for it. If they want a video game or something that is valuable to them, teach them the value of saving for it. Children today are growing up at a time in which they expect instant gratification. I am convinced that is why so many young adults are having problems managing their money. They still expect instant gratification, and they never grew out of it.
As your child gets a bit older, buy them a reloadable pre-paid credit card. Put about $20 on it and tell them it is for emergencies or unexpected expenses only. If they spend any money from it, they must pay off the balance in full at the end of each month. This will help prepare them for managing their plastic when and if they get real credit cards at an older age.
When times were really tough for my family, my kids knew we were having money problems. They could hear my wife and I argue about bills and money on several occasions. That was during my former life...when I didn't manage my money and instead let it manage me. If I could go back in time and do it over again, I would have let my children know a bit more about our financial situation, assured them we were working on fixing it (which we were, and did) and explained a bit more about why we couldn't buy certain things intead of just saying "we can't afford it." There is no need to tell your children EVERYTHING about your finances, but giving them a good overview and appreciation of what things cost is effective.
You don't want to frighten your children, but you do want them to know what things cost, and how that affects you. For example, I told my oldest son how much I averaged per hour in salary, and how many hours I had to work to purchase certain things. It was a real eye-opener for him when I explained I had to work almost a full week out of the month just to pay for rent for our apartment.
We always want to protect our children, and too often we think that means shielding them from the truth. By sharing more about your financial situation and how that affects them, they become more informed not only about where the family stands financially, but about how to manage their own finances as well.
Savvy Frugality Recommended Reading: 10 Ways to Save Money in 2009
"No, we can't afford it."