Family Economy

One benefit of our family economy is that it has turned our kids into values shoppers when it comes to clothes. The younger one looks for sales, and the older one, who used to have to have the “right brand” won’t go near the expensive labels anymore because she has figured out she can get something just as good at the outlets or at Costco for a third of the price.
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I gave my daughter a new outfit that I know she liked the other day and her eyes actually welled up with tears as she thanked me for it. Before we had the family economy she would have just taken it for granted, but now she knows how much it cost and how much work she would have had to do and how much she would have had to save to buy it.
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I’ll tell you one thing about the family economy. It has put an end to hand-me-downs! Our younger boy wanted the shirt that the older one had outgrown and I overheard the older one saying “I paid 30 dollars for that shirt. I will sell it to you for 25.” Guess I am going to have to teach him about depreciation.

Family banking system

I walked by our eight year old son’s room one evening and noticed him neatly putting his shirt on a hanger and hanging it in his closet. “Good for you son—great to see you taking care of your stuff.”

He had been on the family banking system for a couple of months, and his reply, though not altogether respectful, was gratifying, “Duh Dad, this baby cost me $29.95. Do you think I’m going to leave it lying around?”

My daughter is great at getting her pegs and earning her money, but she spends it all so fast on impulse purchases that she has nothing left for the things she needs or to go to the movie with her friend at the end of the week.
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My son had seen one of those humanitarian infomercials on TV about starving children in Haiti. With tears in his eyes he came to me with a check from his own little family checkbook—made out to “children in Haiti” for $100.00 of his hard earned money. I realized that by giving him ownership of his own money we have also given him the true ability to give!
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We have instituted interest in our family bank—at a high percentage, and the kids really want it; but by the end of the week they never seem to have any of their money left to save.

“Gunny Bag”

Get a big laundry bag and draw or sew a “face” on it, with the drawstring opening as the mouth. Introduce “Gunny Bag” to the kids and tell them that he lives in the attic and sometimes (you never know when) he comes down and EATS any toys and clothes that are left out. He comes back on Saturday morning and “regurgitates” the stuff, but if it doesn’t get put away right away, he eats it again.

When I introduced Gunny Bag, the kids formed an immediate love-hate relationship. They loved the fun and games, but they hated that he might eat their stuff.

The change was wonderful. I would come home and instead of the old pattern of yelling and lecturing the kids about neatness and spending a half hour supervising their forced clean up, we now had a fun new pattern: I would just say “Hey, do you hear that scratching noise upstairs….I think Gunny Bag is coming!” They would run around like crazy, putting all their toys and clothes in their places where Gunny Bag could not eat them. Gunny Bag would go from room to room, looking for something to eat, and crying and crying when he couldn’t find anything. The kids would laugh and laugh. (Sometimes it was the kids who would cry and cry when Gunny got to something and ate it before they could grab it out of harm’s way.) It was a game that everyone enjoyed over and over, and the house became much neater.

Ownership is the essence

Ownership is the essence of a simple family economy that is built around choosing and earning. Financial and Material ownership is the prerequisite and the fundamental key to responsibility. And giving kids ownership via money of their things, of their savings, and of their ability to give can be the fore-runner of giving them ownership of their goals, of their education, and of their lives.

The ownership of money is the lead in and the mechanism by which children buy and feel ownership of clothes and personal effects and all the things that are the subject of the next chapter.

“Family Economy”

Of course it’s not only parents who set up an elaborate “family economy” who can teach the lessons of restraint and more careful handling of money. Any parent who learns to say “no” begins to teach these things.

One of our cute friends, now a mother of four, tells the story of her best “wake up call” on ownership: When she was in her first year of college, she was there on a scholarship and was busy in several organizations including a sorority. Because of her heavy work load, her dad had promised to send her a certain amount of money to live on every month.

One month she found that because she had “bought a couple of extras” she was entirely out of money with one week left to go before more money arrived. She called her mom and asked if she thought her dad would send the money for the next month a little early that month since she was entirely broke and without food. Her mother said that she thought he would and that she’d have him call her back.

Very shortly her very loving dad called her back and reminded her that they had decided together on a certain amount of money that would be sent every month and that no way was he going to send more until the next month started. She would just have to figure it out! Horrified, she started going through the cupboards of sorority house to see if she could find some canned goods to keep her alive for the coming week while praying that some guy would ask her out on a dinner date that weekend. “That was one of the best learning experiences of my life!” she told us. “I learned a lot of lessons about money, budgeting, limits and especially ownership that week that I will never forget!”

And lest we begin thinking that giving kids ownership as an antidote to entitlement is only important for affluent or upper middle class kids or just for kids in “rich” western countries, here is another story:

The year before we wrote this book, we spent some time in a rural and very poverty-stricken part of Southern India at a humanitarian project called Rising Star Outreach with our youngest daughter and a our newly married son and daughter in law who had embarked on a nine-month “humanitarian honeymoon”. Before we got to the project, our married couple joined us in Mumbai (Bombay) where we were giving an impassioned speech about the importance of giving kids ownership at a meeting that included some of the wealthiest families of India. Then just two days later as we arrived at the humanitarian project, we found ourselves amidst a startling change of venue with the poorest of the poor of India…families affected with leprosy!

This project was started by a wonderful woman who, on a visit to India several years ago, had discovered that children of families who had been affected with leprosy, whether it was a parent or grandparent, were “untouchables” and their children were not allowed to go to school and therefore destined to a life of begging on the streets. With her wonderful “this is just wrong” mentality, Becky went home and started raising funds from wealthy friends and donors to build a school in Southern India exclusively for children whose families had been affected by leprosy.

What we found at the project was amazing! Bright happy faces of almost 200 children greeted us at their beautiful new school, which included a computer lab to die for! Suddenly parents of “normal” kids in the surrounding villages wanted their children to go to “the leprosy school.”

Our schedule only allowed us to stay for a week, but our newly married kids and our youngest daughter stayed on, and soon began to realize that the biggest problem that the leprosy-affected children were having was—believe it or not—entitlement. Good hearted donors had rallied around them to provide beautiful uniforms, had given them all they needed for school…paper, pencils, pens and prized possessions such as toys, games and new shoes for everyone sent by loving benefactors from America.

The kids didn’t have to work for anything. In trying to figure out how to cope with this problem, our kids came up with the idea of a “Star Store” where kids could buy things with “stars” they had earned by doing their chores, brushing their teeth, helping with the younger children and doing their homework. With the dedicated effort of the house-parents, counselors and teachers, the effects of those kids feeling ownership of their things was quite remarkable. The children brushed their teeth with brushes they had “bought” from the star store, and did homework with their “own” pencils without being asked or reminded. And suddenly they were much more appreciative of any help they got from volunteers. Again we were reminded that ownership works at any economic and social level.

Recently in Florida a woman who was in charge of all the foster care in her county came up after our speech and said that a light had gone off in her head during our presentation as she realized that the biggest problem with foster children, especially those who drift from household to household is that they feel no ownership!

She said she had decided to write up our family economy system for giving kids ownership and get it to all her foster parents so that they could begin to spring the entitlement trap that is gripping the foster care kids.

Family Bank

As the pegs and the bank and the checkbook and the responsibility for buying things become established (don’t expect a perfect system right away--let it build, and let the learning come at its natural pace) you can begin to introduce various expansions and additions to the family economy:

Interest: Let the child have a second, interest-bearing account in the bank that is separate from his checking account. Have a passbook in the bank that keeps track. Negotiate the interest, but let it be high, and pay the interest often so their money will grow fast, but put in the stipulation that the money in that that savings account is for college, and agree on the percentage of college tuition that they will pay themselves.

To be honest, we got conned a little by our own kids on interest. When we first told them that the family bank was going to pay interest (and when we explained that that meant that if they just left part of their money in the bank it would grow) they were pretty excited. But our proposal of 5% annually was a non-pleaser! “Annually?” said the 13 year old, “doesn’t that mean once a year? We can’t wait that long.” They proposed once a month, and we compromised at once each quarter or every three months.

Then the 9 year old really got us. He said “I’m not very good at fractions or percents yet, but I could figure 10% because all I’d have to do is move the decimal point!”

So we ended up paying 10% interest each quarter! And it didn’t take that 9 year old very long to essentially figure out compound interest. He said “wow, if I leave it in for two years, it will double?!”

We decided that, since the savings was earmarked for college, why not really shell out the interest and let it grow. Better that part of the money for college flow through the kids, and to have them perceive ownership of it which we hoped would turn into a sense of ownership of their college education.

Transfers to “Real” Accounts: With many families who have instituted the family economy, the practice has been to take 15 year olds down to a real bank (or better yet a brokerage) and transfer all of their money from the family bank account to the real account. Kids who have been writing out checks for seven or eight years are ready for the real thing.

High-interest savings set aside to pay a percentage of College costs: Many of the families we have worked with chose to follow our high-interest policy with the stipulation that everything in the interest-bearing savings account would go toward college. With this in mind, some families pay even more than 10% per quarter. At rates like this, some of you may want to run out and find these families so you can invest your own money, but remember, they are not federally insured!

But seriously, as parents, we want that family bank money to multiply, so that our kids can feel real ownership over the money that will help them pay for some percentage of their college tuition.

One proud dad told us of his experience taking his 18 year old daughter to the college where she had been accepted to pay for her first semester. She had been a part of their family economy for years, and they had agreed that the part of her money that she was saving and getting interest on would be used to pay 20% of her college tuition. He said he watched her hand shake as she wrote out her largest check ever to the bursar. “Dad,” she said, “That is a lot of money!” He said he thought to himself “you should see the check I have to write!” Then came the real payoff moment when the daughter continued, “If it costs that much, I had really better study hard!”

Ownership of one’s own education! Think of the benefits of that! (We will get into it further in chapter)

Family Bank

First: Announce to the child that you believe he is now old enough to become part of the family economy and to become a member of the Family Bank. This will mean that he will be able to have more money than he has previously had, but he will be expected to earn it, and he will then be responsible for buying the things he wants rather than asking you for them. He will have an account in the Family Bank, and will have his own checkbook so that he can take money out of the bank by writing a check and put money in with a deposit slip. Show him how the checkbook has a check register so he can always keep track of how much money he has. (Have $50 in the account—as a new member bonus, and already written at the top of the check register.) Tell him you are very proud of him and excited for him to have a checkbook and a bank account just like you. (Let the child know that a debit card is the same as a checkbook, but that a checkbook is better training….and that a register that keeps track of the balance should be used even with a debit card.)

Second: Explain that there is a certain amount of money that comes into the household, and there are certain things that need to be done to keep the household going and in good shape. Make a list of all the jobs, tasks, and maintenance that are required. Include specific things like cleaning each room, fixing each meal, mowing the lawn, doing the wash, keeping the front hall clean, etc. (Take your time and make the list as long as you can.) Also include things like getting kids ready for school, making sure the homework and music practice gets done, getting everyone ready for bed. Ask if it makes sense that those who participate in the work in the home should get part of the money that comes into the household.

Third: Ask how the child thinks he can get more money into his bank account and into his checkbook. Explain that you have decided that he is old enough to have responsibility for some of the things that have to be done in the household, and that if he can remember to do them, he will get paid on “payday” which will be each Saturday. Be sure he understands that this replaces allowance, that it is a more “grown-up” system, and that he will be able to earn a lot more money than he used to get from allowance, because he will be doing some of the work and because he will need more to buy more of his own things.

Fourth, introduce the pegboard (which should have his name on it) and explain that there are four pegs he can get each weekday, and that each of them will go toward the amount he earns for the week. The first peg is the “morning peg” and can be put in when he gets up on time, gets ready for school, has breakfast and has everything together to leave for school on time. He can put the second “homework peg” in after school when he has finished his homework (and his music practice or whatever else you want him to do after school). The third “zone peg” can go in when he has checked on and cleaned up his zone. (Each child should have one small “common area” or “zone” of the house—a hallway or closet or front porch—that everyone uses. This should be an area that you don’t clean—that is left for the child.) And the fourth “bedtime peg” goes in if he is in bed by bedtime; teeth brushed, prayer said, school stuff laid out for the next day.

By the way, the word “zone” came about when we were trying to initiate our youngest son into the family economy. He was a pretty headstrong and independent kid, and he had a deep aversion to terms like “job” or “task” and we were trying to make it all more palatable to him. He did love basketball so we tried a different term. “Do you know what a zone defense is son?” “Sure,” he said, “it’s when instead of guarding one guy you have a certain part of the court, and you don’t let anything bad happen there.”
“Exactly right,” I said, knowing I had him now, “so now your zone is the front hall and stairway, and all you do is just be sure nothing bad happens there.”

Fifth: Explain that before bed each weeknight, the child can get a “slip” (3x5 cards or post-it notes work fine) and write a “1”, “2”, “3” or “4” on it, depending on how many of the pegs he got in that day. The child must then get the slip initialed by a parent (or by the babysitter or tender if the parents are out) and he can then put it through the slot in the top of the family bank. On Saturday it is payday, and the bank is opened by the banker (we usually suggest dad) and each child gets his slips and adds up his total. Five weekdays with four pegs a day yields a maximum of 20. How much “pay” the child gets is according to how many pegs he got in during the week.

The best way to determine how much a child can earn each week is to calculate how much you have been spending on him in an average week—on toys and clothes and entertainment and personal effects. Make it so that, if he gets all or most of his pegs, he can approach that amount (we sometimes say two thirds of that amount for a good, consistent 19 or 20 peg week.

And remember, there are some things your child will probably never buy for himself (underwear seems to not be on the “must have” radar of most kids) so you will still need that other third of what you’ve been spending on him.