The Sink or Swim Money Program

A 6-Step Plan for Teaching Your Teens Financial Responsibility

John E. Whitcomb

• Publisher: Diversion Books
• Year: 2016
• ISBN:
  9781682307571
• Topic: Personal Development
• Subtopic: Personal Finance

A step-by-step guide to teaching kids fiscal responsibility, and instilling positive spending habits that will last a lifetime. Children don't know much about money—they just know what they want (like overpriced junk food and the most expensive sneakers). But learning a little financial wisdom can set them on a path that will make their futures significantly better—and allow them to navigate a scary adult world full of spending pitfalls. In this book, Dr. John E. Whitcomb provides a six-step program to do just that. It begins with letting go. Terrifying as it seems, your children learn more with the power of non-essential spending in their own hands. With the freedom to spend as they please and make their own mistakes, spending money becomes not an argument, but an important lesson in priorities. But they won't be alone in the wild with a pocket full of cash. Whether for school, clothes, or hobbies, teens and parents can sign a contract detailing the limits of their spending that work for each of them. From day-to-day decisions all the way to the milestones of adulthood—opening their first checking account, college savings, and getting their first car—Dr. Whitcomb's application of the capitation method prepares them for every step of their financial journey. "Explains Whitcomb's original and systematic technique for teaching kids how to manage money responsibly."— Publishers Weekly Previously published as Capitating Your Kids: Teaching Your Teens Financial Independence

CHAPTER ONE

What Ideas Are We Working with Here?

Capitate! What does that mean? Actually, the idea is pretty easy. A capitated contract is one in which a fixed amount of money is paid for a product or service. The party responsible for the outcome of the service can get to the goal in whatever way he or she sees fit. The party paying for the service is guaranteed that the cost is agreed upon and will not change.

The federal government calls it “block grants”—giving a chunk of money to the states for a certain designated service and letting the states handle it as they see fit. You call it making ends meet, balancing the checkbook, getting by. You have a certain amount of money that has to match a certain set of needs and desires.

The term “capitated” is used in health care to define a contract in which doctors and hospitals are paid a fixed amount each month to care for a population of patients. In health care, capitation shifts the responsibility for maintaining wellness to doctors and hospitals.

Do these ideas fit into your family? Sure. Your children need to learn how to handle money. They are eager to do it. I am about to show you how to work out a plan for a fixed amount of money (a budget) that is to be paid to your teens for a specific responsibility, such as keeping themselves clothed and groomed. They are being “capitated” for the service of taking care of themselves in the contextual values of your family. How they spend, how they save, what they give to charity are all important cultural values within your family. Learning how to do each of these requires practice, example, and explicit direction. Which comes first? Do you want your kids to give first, save second, and spend third? Or is that just an ideal and you are not quite sure how to get them there? This book is intended to get you there.

Capitation leaves you out of the conflicts that arise when you try to take care of your kids without their consent.

Such conflicts often make you want to “decapitate” them and serve them up on a platter. They probably are thinking the same about you.

Maybe we can leave the definition of capitation as simply that—putting a head back on your teen, just when you were not sure if he or she had one. The genius of the concept is that your teens are putting their own heads on their own growing shoulders. They do all the work.

American society has no shortage of messages about the idea that money is the universal medium of exchange, the lubricant of social interaction. Your kids want to get in on the action. They want to be treated as adults and to have the resources that adults have. You want them to be competent at money management, and in doing so, you want them to practice the critical skills of saving and giving as well—the values you want your kids to have as adults. Without the skills of daily management the ideals of saving and charity are just dreams.

Another fact is that the longer one goes to school, the better one’s earning potential becomes. As kids get to their early teens, the education road ahead looks as if it’s light-years long. They feel they haven’t got much control over an awful lot of it. (How badly do you want your kids to go to college? How about a graduate degree after that? Well, that could amount to twelve years after eighth grade—double their current age!) When I look at unemployment rates based on levels of education and I see eight to ten percent for high school grads and one-half to one percent for graduate school grads, I want my children to have as much education as they can get…and afford.

Where in all that learning process do you see your kids learning how to handle their monthly budget? Where do you see them being taught how to gauge how much they can borrow to pay for school? Who is out there showing them how to make ends meet, convincing them that money does not grow out of ATMs, or warning them that credit cards are expensive loans? Is anyone teaching them that delayed gratification can have tremendous rewards?

You do not see much, if any, financial learning going on in our schools. Kids leave home after high school on their way to life with a variety of aspirations that have financial implications. Kids aspire to become highly educated in order to get good jobs and be well paid, but they do not have the tools to manage their income, regardless of how modest it may be. Buying a house requires planning and saving. Even the purchase of a first used car takes a fair amount of thought. With current school instruction our kids have learned few financial tools to help put all those plans together. Even worse, by the end of high school we expect our kids to know all those attitudes and skills we learned by our own trial and error, such as overspending and then having to dig ourselves out of a deep debt hole. We watch helplessly as every credit card company in America showers our kids with offers of easy credit.

A bad time to learn these lessons is during the years of advanced education after high school, because students overwhelmed by financial stress are more likely to drop out. Yet school represents the very means on which their opportunity to pay off their debt rests. Your teens need as much education as they can get. Society needs them to become as educated as they can be. We all benefit from their educations. To stay educationally motivated, they have to learn to handle money before they get to college.

The values we are dealing with in these pages start with simple concepts. Your kids need to learn how to handle money before and during high school. We’ve settled that. Even though that’s not the only lesson they need to learn, if they can get that one down pat, they’ve got the context for working on many others.

The goal is for your kids to become competent at the management of their small universe of money so they can focus on the big stuff such as education, lasting and caring love relationships, and stewardship of this planet.

They might even get savvy enough to let their creative side blossom and learn money management well enough to discover how to really make money and become entrepreneurs. This has been the real genius of our American culture—our ability to produce an entrepreneurial drive and vision in our economy. To continue to realize that genius, we need every generation to pick up the values of risk and reward that start with the very basics—one’s own universe of responsibility and reward.

So, what are the values in relationship to money that this book talks about? Let’s list the ten of them.

VALUE NUMBER ONE: LETTING GO OF CONTROL AND TRUSTING YOUR KIDS

This one starts with you. You have the power and control. You have the money. For your kids to learn, you need to let go of your control over “their money,” the money you would spend on them anyway. Make the intentional decision to transfer control to your kids’ hands. You need to believe that you have good kids who are just dying to have you trust them.

Thus, value number one starts with you and ends with you.

Control in your hands is the source of conflict and is a way of keeping your dependents dependent. Unfortunately, you won’t get what you want if you go down that road—you will just get rebellion and frustration and lots of immature behavior to further justify your need for more control. That starts a downward spiral of dysfunction. Don’t go there!

The flip side of letting go of control is trust. Trust is a much more nurturing frame of reference. You need to make the argument in your mind that you want to trust your kids. Decide to make a forum in which they can prove to you that they are trustworthy. This means they have to have something of value with which to be trusted. What else is more important to them than the resources you spend on them and your trust that they will spend those resources well?

This principle of trust and self-governance has far wider implications than those found in this book. The modern, well-managed American corporation is composed of self-reliant, independent, self-managed work teams that are responsible for their own destinies. Teaching your children a similar model of self-reliance and personal responsibility will also go far in making them well accustomed to succeeding in the dizzying world of the new American workplace. That aside, the principles of capitation will help you get your kids off first base. Trust them, and they will blossom with self-confidence.

VALUE NUMBER TWO: LEARNING HAPPENS FROM MISTAKES FOR WHICH THERE ARE CONSEQUENCES

You learned by making mistakes. The trial-and-error method works. You probably look at many of your youthful misadventures as “learning experiences” instead of calling them bald-faced botches. And you did learn from them. Give your kids the same opportunities. Just as you send your kids to school to solve tough math and science problems, give them the opportunity to work on rigorous financial responsibility problems at home. When I smoked my first cigarette behind the school in one huge deep inhalation, I upchucked into the bushes for five minutes immediately thereafter. I learned from that. Well, after the third time.

If the best learning happens from connecting behavior to consequences, a good time to give your kids the opportunity to learn is when the cost is in a range you can handle. Starting with small responsibilities establishes the tools your teens need. Once those tools are in place, your teens can be entrusted with larger circles of responsibility. The alternative is to wait for your kids to discover the consequences of poor judgment and lack of planning the first semester they are off at Big Bucks U. “Dad, you know that $4,000 you gave me last month for living expenses?…”

By starting your kids early on a process over which they have control, you allow them to make little mistakes over smaller universes of responsibility in a place that is safe—your home—over issues that are not vital to their immediate survival. Heat, light, medical care, and a stocked fridge are necessary to their immediate survival. Their learning to handle money responsibly for non-vital items allows you to keep safe control over vital items and medical bills. Learning the tools of money management in the safety of home gives teens the skills they need before it’s time to go off to BBU, where they become responsible not just for their discretionary allowance, not just for their clothes and toothpaste, but also for their food and shelter.

VALUE NUMBER THREE: LEARNING TO PLAN OVER LONG PERIODS

Your kids need reliable, monthly, safe money for them to spend. Money that can’t be taken away. Money that’s there for them to make mistakes with. (They will.) There are consequences if they mess up, but not so dire as to be dangerous. The money’s there every month, in big enough doses to be meaningful—and for purposes that intensely interest them.

We are talking about control and planning here: putting your kids in control of a small part of their lives. You let go of control over them. They get control. It happens every month, but never all at once.

This means they have to plan ahead. They have to save up for the big stuff. They have to go lean during the saving period. They have to plan, wait, and be rewarded for waiting. Planning means making a budget. Budgets do work. Making a budget means having a handle on the “big picture.” They delay gratification now to get something better down the road. And when your kids do it right, they will have extra left over for which they have bonus choices.

The only reason to delay gratification now is that it makes the future better. Being able to delay gratification is a critical life skill. Enduring the discipline of pain now leads to much better rewards later. A little more pain means a lot more reward. Delaying gratification is not learned in one fell swoop. Kids need to practice it at little levels on little projects. Then college doesn’t feel so long. Graduate school doesn’t feel endless. For every year of school completed past high school, income goes up 15 percent. That is reward for delayed gratification in its purest form.

How much do you spend for a pair of sneakers for your teen? Current culture demands they spend about $200 a pair. That is the status symbol du jour—expensive sneakers. You want them to feel good about having a pair that cost $40, the functional kind that are just as good as the more expensive ones. You want your teen to make the connection that the $160 they save on sneakers can be used for something else. Being frugal has rewards. But you, the parent, cannot make that value decision for your teen. Your teen has to learn to feel that value internally.

Your job changes from micromanagement over a budget to supervision over values and opportunities. You stop being the budget cop and start being chauffeur. “You want to go clothes shopping? Sure, I’ll take you. How much money have you got in your account this month?”

You stop being the naysayer and start being the true leader in the family. You establish cultural values. Saying to your children that you expect and empower them to budget and plan ahead says that delayed gratification is an important cultural value that leads to great rewards. They will pick up on that value and learn to treasure it.

VALUE NUMBER FOUR: FAIRNESS

The Capitation Method works when you act on the principle of teaching your kids to spend for themselves what you would normally have spent on them. We are not talking about saving money in the immediate sense. The intent here is not to do this project for cheap. If you plan a budget carefully enough with your child, you should spend exactly what you would have anyway for your family’s expectations and income. The intent is to be fair and successful. Say to yourself, “I want my child to succeed, and I am not going to rip my kid off.” Your success comes not in saving money in the short term but in creating a state of mind that living contentedly within your means is the key to financial independence.

The temptation exists to be reactive to irresponsible, spoiled teens and create a budget that will punish them for their profligate ways. That won’t work. All parents of teens have, at some point, muttered under their breath the vow to ground their offspring for the remainder of their lives, prematurely shortened though that may be. Such a punitive approach is the inevitable outcome of fruitless fighting over control. If control issues are released, fights don’t happen. Success depends on identifying and rewarding positive behaviors, not punishing errors. Your job as a parent is creating culture, not petty rules with punitive consequences.

The truth behind this principle is that once your kids feel responsible and fairly treated, they will learn to live happily within their means, and that is much cheaper for you. In the long run the method I advocate here saves you bundles. Your kids develop an attitude of solving problems within the means at their disposal, recognizing that doing so—planning, budgeting, waiting, and saving—will result in successful outcomes. Living contentedly within the limited resources one has is the first key step to lifelong contentedness. Not learning that lesson is the first step to keeping up with the Joneses, and that is the first step to lifelong money struggles. To start, you have to create the attitude with your kids that you are being fair.

VALUE NUMBER FIVE: BUILD ON YOUR SUCCESS

Kids learn fast. You can start with some simple ideas and build from there. The concept of imprinting is to create a behavior by introducing it at just the right developmental time in a growing being’s maturation process. You want your kids to be imprinted with responsibility and successful money management skills at the age at which they need to start making their own decisions. The rebelliousness of teenagers is the best indicator of their insistence that they want to make their own decisions. Lesson plan one gives you a step-by-step budget process for a limited universe of responsibility starting at age eleven or twelve: clothes. Clothes are a good place to start because they are so immediate in terms of use and need, as well as in demand for peer issues.

Once your children have learned the idea of designing and calculating a clothing budget, they should be given the responsibility of managing that budget. When they have developed the skill set for managing their clothing expenditures, introduce a more inclusive budget. Once that budget is developed, build on your success and give them control of it. Ages thirteen to fourteen are good ages for them to design and start gaining control over a gradually larger budget universe.

Once your children have learned the budgeting process and have some control over it, how about having them learn a couple of different methods by which they can demonstrate their control? By that I mean you can start with a cash basis of transactions for an early budget and then move to more sophisticated methods of transactions, such as a debit card and then a checkbook. Once your children are old enough for a driver’s license, they are ready for their own checkbooks. Once they have their checkbooks, it is time for them to learn to pay more of their own expenses.

Learning in small steps works. As long as your children have the forum to make learning progressive and to continue to build on their prior successes, they have the foundation to go a long way.

An analogy can be made between progressive financial learning and progressive driver’s-ed. Over the last decade many states have recognized the inadequacy of driver’s education for teenagers. (Did you know that a sixteen-year-old driver with the traditional, limited driver’s education of five to ten hours of observed driving has approximately a 25 percent chance of having an au...

Table of contents

• The Sink or Swim Money Program
• Copyright
• Dedication
• Acknowledgments
• Foreword
• Historical Roots
• A Fiscal Fable
• 1. What Ideas Are We Working with Here?
• 2. What Is the Right Age to Start and with How Much?
• 3. How Do You Calculate the First Budget?
• 4. The First Clothing Contract: Getting “The Card”
• 5. My ATM Card Is Broken
• 6. Stepping Up to the Next Level: A Global Budget
• 7. Going to the Prom for a Buck
• 8. Lunch Money
• 9. Will You Cut My Hair, Dad?
• 10. The Real Cost of a Trip to Walgreens
• 11. What Do I Need a Checkbook For?
• 12. Is There Any Extra Work Around Here?
• 13. Be Kind
• 14. Charity, Savings, IRAs, and College
• 15. Insurance: Medical, Auto, Home, Life
• 16. You Gotta Talk the Talk and Walk the Walk
• 17. What’s the Least I Can Do to Get the Most Effect?
• Lesson Plan One: Creating a Clothing Budget
• Lesson Plan Two: Using a Clothing Budget and Developing a Larger Budget
• Lesson Plan Three: Using a Larger Budget with an ATM Card
• Lesson Plan Four: Getting Ready for a Checkbook and a Car
• Lesson Plan Five: Paying for Expenses with a Checkbook; Getting a Credit Card; Establishing the Expenses of Driving and Insurance
• Lesson Plan Six: Learning the Details; Planning for the Future; Saving for College, Retirement, and IRAs; Health Insurance; Starting a Family
• Contracts
• About the Author
• Connect with Diversion Books