HOW TO HANDLE MONEY
MONEY PROBLEMS: THE ROOT OF ALL KINDS OF EVIL!
The most common subject of disagreement and argument in most marriages is money. A great many individuals and families are in serious debt trouble. Bankruptcy, something that a generation ago would have been a source of tremendous embarrassment, is now commonplace even among Christians.
This booklet is not intended to help people in these dilemmas. Poor Richard's Almanac said, "An ounce of prevention is worth a pound of cure." This booklet is an ounce of prevention. The purpose of this booklet is to assist parents in training their children, from the time they are very young, how to deal with money wisely and biblically. If followed, the instruction in this booklet will help get your children started on the right financial paths so that: a) their marriages will not crash because of money problems; b) they will not find themselves in debt; and c) they will not end up in a bankruptcy court some day.
SOME GENERAL PRINCIPLES
The parable of the talents in Matthew 25:14-30 spells out the following principles of biblical stewardship.
14 "Again, it will be like a man going on a journey, who called his servants and entrusted his property to them. 15 To one he gave five talents of money, to another two talents, and to another one talent, each according to his ability. Then he went on his journey. 16 The man who had received the five talents went at once and put his money to work and gained five more. 17 So also, the one with the two talents gained two more. 18 But the man who had received the one talent went off, dug a hole in the ground and hid his master's money. 19 After a long time the master of those servants returned and settled accounts with them.
20 The man who had received the five talents brought the other five.
'Master,' he said, 'you entrusted me with five talents. See, I have gained five more.' 21 His master replied, 'Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things. Come and share your master's happiness!' 22 The man with the two talents also came. 'Master,' he said, 'you entrusted me with two talents; see, I have gained two more.' 23 His master replied, 'Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things. Come and share your master's happiness!
24 Then the man who had received the one talent came. 'Master,' he said, 'I knew that you are a hard man, harvesting where you have not sown and gathering where you have not scattered seed. 25 So I was afraid and went out and hid your talent in the ground. See, here is what belongs to you.
26 His master replied, 'You wicked, lazy servant! So you knew that I harvest where I have not sown and gather where I have not scattered seed? 27 Well then, you should have put my money on deposit with the bankers, so that when I returned I would have received it back with interest. 28 "Take the talent from him and give it to the one who has the ten talents.
29 For everyone who has will be given more, and he will have an abundance. Whoever does not have, even what he has will be taken from him. 30 And throw that worthless servant outside, into the darkness, where there will be weeping and gnashing of teeth.'”
Note the following principles:
1. Everything we have belongs to God. It is merely entrusted into our care. (v.14) This is a principle that we Christians say we believe, but we tend to spend like it is all ours!
2. God gives us amounts based on His sovereign will and our ability to manage. (v.15) Most financial problems are not caused by having too little. They are caused by failing to live within the means God has determined for us. To complain that we do not have enough is to say that God hasn't given us what we need. We must remember, and train our children, "If my Father doesn't give it to me, I do not need it!"
3. God will require an accounting of our stewardship of His things. (v.19) Those who spend like there is no tomorrow will see tomorrow, and regret it.
4. We must manage His things according to His will, not according to our will, or our misunderstanding of His will. (v.20-27) In the parable, two of the three stewards did well based on God's principles. The third thought he understood the master, but he was mistaken. The master chided the steward saying, "You knew me, huh?" He was mistaken. His poor management revealed that he did not have a proper relationship with the master. Those who do not have a proper relationship with Jesus Christ are liable to have the same kind of rude awakening on the day of accounting.
5. We will either receive commendation or condemnation, based on our stewardship. (v.21, 23, 28-30) Because stewardship reveals our relationship and our level of submission to Christ's Lordship, final judgment will be closely associated with stewardship.
We must teach, and model these principles for our children. Then we are ready to teach them how to handle money.
A BRIEF OVERVIEW OF THE SYSTEM
Children are given a regular allowance. That allowance is to be budgeted. There is to be a day of accounting on a regular basis. The whole process is monitored by parents, until the children are able to do it on their own. Simple!
ALLOWANCE: PAY, NOT FREE MONEY
When children are young, they have no way of earning money outside the home, so parents must provide the money. However, since God has ordained work as the means by which wealth is obtained, this allowance is not "given for nothing." Children must perform some household responsibilities in order to earn the money. When children fail to perform their responsibilities, they should be docked, or fined. This is how the real world operates. The sooner they learn this, the better. The responsibilities, or work, will vary depending on the age of the child. (I do not suggest that children be paid for cleaning their own rooms. They may be fined for not doing it, but they need to learn that some responsibilities simply must be done.)
How frequent the allowance is paid out will depend on the family financial picture. Once each month is probably the best. Weekly might be too often and require too much "accounting time."
Allowance needs to be age appropriate. Here is a guide that may be modified based on your family's needs and abilities:
t Children under 10 are not likely to need more than $20 per month.
t Young teens are likely to need $30 to $35 per month.
t When children are in high school they are likely to need in excess of $40 per month.
If you are wondering where you are going to get this kind of money for a child's allowance, consider how much you are currently spending on the child that is totally unaccounted for. Remember too that this is an educational process. Education is never free. Better to shell out this relatively small amount now, so that your adult children are not coming to you later asking for thousands!
Because our children's financial lives are rather simple, keeping the budget simple is important. A simple budget will teach principles that can be applied to a more complex budgeting process as the children mature, and their financial lives become more complex. The following categories make a fine budget for children and young adults:
TITHE — the first 10%
The Bible teaches in numerous passages that we are to return a portion of our income to the Lord. The portion most commonly spoken of in the Bible is the tithe, or 10%. The Bible teaches us that we are to give God the first, and the best, so the tithe is the first budget item. Teach your children that "Nine tenths always goes farther than ten tenths, when the first tenth goes to the Lord."
SAVINGS — at least 10%
Some mistakenly think the Bible teaches that saving money is a lack of faith. This is due to misreading the sixth chapter of Matthew, and ignoring many other passages, especially in the Proverbs. The Bible says we are not to be anxious about money, but it also teaches that planning is wise. A major reason so many purchase so much on credit is that they haven't learned to save patiently until they can afford what they want to purchase. Learning to save is important for this very reason.
Putting at least 10% into savings is a good start. Once children are able to make larger amounts of money, this is an area that should receive not only more money, but an increased percentage of the child's money as well.
Savings money may be used for long term, high ticket items like cars, education, etc..
GIFTS — around 10%
Generosity is a virtue. Planning to be able to give gifts on birthdays and at Christmas is wise. Money set aside for this on a regular basis will allow gifts to be purchased when those times arise, without having to throw the normal living allowance into a tail-spin.
Putting 10% of the child's income into the gifts account is usually sufficient. Be prepared however, this may mean that your child will show up to a birthday party with a less expensive gift than the children whose parents just go out and buy a gift for their kids to take to parties. It is important to remember that gifts are not meant to impress, but to demonstrate love. A less expensive gift, purchased with the child's own money will be a greater demonstration of love — even if no one else knows about it.
PERSONAL EXPENSES — 35 - 40%
Children will now be expected to purchase all of their own personal toiletries, hair care items, acne medications, and some clothing items. The child's allowance will not likely be enough to make major purchases like shoes and coats. You can help by paying all or a part of these items. We generally pay half. This gives the child incentive to save, and to resist the urge to spend foolishly on brand names and faddish styles. Children who buy these kinds of items with their own money tend also to take better care of their things, seeing to it that they last.
Designating 35% to 40% of the child's income should be sufficient for these items.
SPENDING — 30 - 35%
Spending is not bad. It is a fact of life. Foolish spending is bad. By training children how to spend wisely when they are young, you are helping them establish wise spending habits that are likely to carry over into adulthood.
What do the children purchase out of their spending account? Everything not already listed, from pencils to bicycles. The next time the kids suggest fast food or an ice cream, everyone pays their own way!
Children need to learn that if they spend their money early in the month, they might not be able to do certain things later in the month since their money is gone. When they miss a church youth group skating trip because they spent all their money on candy, they will learn a valuable lesson. You must not bail them out of these situations if you want them to learn.
Putting 30% to 35% of their income in this account is usually about right.
THE ENVELOPE SYSTEM
Purchase an accordion folder for each child. Mark five envelopes with the five categories. On payday, dole out the allowance in small bills so it will divide up evenly. (Example: Child's allowance is $20 per month. Give them 2 dollars each for tithe, savings and gifts. Give them 7 dollars each for personal expenses and spending.)
Place the envelopes in the accordion folder, that is now the child's "bank."
SPENDING AND RECEIPTS
Each time the child buys anything, they must take the money out of the correct envelope. They must return any change and a receipt verifying where the money went. On payday, before the child gets the current allowance, all of the previous month's allowance must be accounted for either with money or receipts. In the event that a purchase doesn't yield a receipt, at the time of the purchase, the child may make one to put in the envelope to verify where the money went.
Using a monthly balance sheet similar to the one in the back of this booklet, see that the child can account for the money from the last payday. Be sure to write what the expenditures were on the balance sheet. The receipts can be disposed of at that point.
There must be a penalty for not having receipts to account for the money. Depending on how hard you want to be, you may adopt a policy that says: if the spending account is $2 short, the allowance will be docked $2 in the current month. If that is too harsh (and it may be at first, since children come up short until they learn the system) you may chose to dock a percentage. For instance, if an account is short $2, dock the current allowance $1, or $.50, or whatever seems reasonable. If you do nothing, you are teaching your child a harmful lesson.
The next step is to dole out the current allowance. Count it out for each account, involving the child in the process. The balance sheet should reflect the following for each account:
Last Balance — Expenses + New Income = New Balance
You may decide to round figures off to do away with too much change in the child's envelopes. We round everything each month to the nearest twenty-five cents. Other change goes into the child's change jar that the child can use at his/her discretion.
FINING YOUR CHILD
Failure to do certain chores should cost the child. Determine what is fair, and deduct that amount from their allowance. You may wish to fine your child for other kinds of unacceptable behavior.
Our girls learned not to speak disrespectfully to each other when their allowance was cut fifty cents for doing so.
When a child is able to do extra chores that you wouldn't normally ask the child to do, you can pay them bonus money. Be sure that the task and the pay are agreed upon before hand. This is extra money and is to be paid to the child over and above the regular allowance. I do not recommend that the child be paid for everything they ever do for you. This may train them not to contribute to the family unless they are paid. Children need to do some tasks simply because they are members of the family.
Because a goal of responsible parenting is to teach the child to be independent from the parents and dependent upon the Lord, encourage them to earn money outside the home when they are able. These means of earning outside income might include baby-sitting jobs, paper routes, etc..
When the child earns money from sources outside the home, you may chose to adjust their allowance. You do not want to penalize them for working outside the home, however. If the allowance is $20, and the child makes $10 outside the home on a given month, while you may diminish the child's allowance by $10, I recommend diminishing the monthly allowance by only $5. This saves you money and teaches them that you are not the source of all money, but it doesn't take away their incentive to earn income from outside as well. Of course, you can modify the percentage of allowance decrease to outside income ratio in whatever way that works best in your family.
Whenever the child earns extra income, it should be put in a place of safekeeping until allowance day when it can be divided up into the various accounts. The child must not assume that extra income is all for spending. That income needs to be divided up into the various accounts as well. If the child needs the money and cannot wait until payday, you may do a special mid-month accounting. Be sure to fill out a sheet on it!
If the child is earning more money than he needs, put a greater amount into savings. This will come in handy when the child becomes a teenager and needs larger sums of money for more expensive things.
Some income does not need to be divided up among the various accounts. Money received as birthday or Christmas gifts does not need to be divided, for instance. That can all go into SPENDING if you chose to allow it.
While not all Christians agree on this point, some believe money that is inherited should be tithed on. Pray and decide based on your convictions.
MORE ON THE MONEY IN THE VARIOUS ACCOUNTS
Money may be taken from Spending and put into any other account.
Money may be taken from Personal Expenses and put into any account EXCEPT Spending. (It is better to stock-pile money here than to spend it on leisure. When large expenses arise, there will be funds for it.)
Money may NOT be taken from Tithe, Gifts or Savings and put anywhere else. PERIOD!
When the child fails to tithe (for example, if the money given the previous month is still in the Tithe envelope at the next payday) the child must tithe 20% interest (out of Spending). This is God's law. (See Leviticus 27:31)
When the Savings account envelope gets more cash in it than is reasonable, open a bank account for your child. Each time the savings envelope gets to a certain point, put it in the bank for the child.
ESTABLISHING A CONTRACT
Writing a contract is an optional step that you may or may not chose to exercise. The value is that it demonstrates how serious the issue is. If you do establish a contract, be sure it spells everything out. Be sure that everyone involved understands what their respective responsibilities are. Have each party sign it. I recommend that if you do write a contract, make it for no longer than six months at a time. At that time you can review and redefine it as needed to be practical and realistic.
While this system costs money, it will save you money. While this process takes time, it will be time, with your children, that is well spent! After all both we and our children want to hear our Lord say, "Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things. Come and share your master's happiness!"