Q. My question concerns our only child, our 15-1/2-year-old daughter, and her attitude about money.
She thinks the ATM is a never-ending supply and insists on buying high-priced designer brands. Her hair cuts with highlights are costing us more than $150 a month. I make a decent amount of money, but I would like to retire someday and find myself resenting the fact that she doesnt seem to appreciate how hard I work so she can buy what she wants and soon go to college with money that weve saved.
This situation is also causing some friction between my wife and me. There must be other families in similar situations; we cant be the only ones with a slightly spoiled daughter. Do you have any advice on how to adjust my daughters attitude toward money without starting a war in the house? Shes a great kid, and I love her very much, but this carefree spending has to stop.
Youre not alone, especially with an only child. Many teenagers feel pressure to have the latest and best, whether its clothing or technical gadgets. That said, her attitude toward money may be the result of too many material gifts from a very young age. The following plan may help you deal with this issue.
1. Sit down with your wife (without your daughter) and review your cash flow, emergency fund, college fund and retirement saving plans. You should have an emergency fund of three to six months of your fixed expenses such as mortgage, insurance, utilities etc. in a safe/boring investment vehicle such as a money market or checking account. Determine whether your current savings and contributions will provide the amount needed to pay for planned college expenses for your daughter. Review your retirement plans to make sure you are contributing enough to allow you to retire at the age and in the lifestyle you desire. If you have money left each month after establishing an emergency fund, paying all your bills, saving for college, saving for retirement and meeting any other household expenses, such as replacing your car, you and your wife can decide how to allocate this extra money. Some of it could be given to your daughter as an allowance.
2. Determine what you think is a fair annual budget for your daughter. Use past expenses as a guideline, but dont think you have to match what youve been spending on your daughter, especially if it affects saving for retirement.
3. Meet with your daughter to discuss her new allowance and the items/expense for which she will now be financially responsible. Show her how you arrived at the figure, ask for input, and if appropriate adjust the amount. Remind her that she can supplement her allowance by baby-sitting, mowing lawns, doing chores or requesting clothes or money as presents for birthdays and other occasions.
4. Once the final figure is agreed upon, make sure she knows this is her allowance for the entire year. You may want her to sign a simple contract or agreement so theres no misunderstanding. Let her know that any money not spent is hers to save or spend in future years.
5. Determine how and when the money will be given to her. This will depend on your cash flow and how responsible she is with money. Until you know how she handles money, you may want to maintain control of the funds and keep track of her expenditures on paper.
This plan will teach your daughter money management skills. It should make her a good comparison shopper, and may keep her out of money trouble in the future.
Holly Nicholson is a certified financial planner in Raleigh. She cannot answer every question. Reach her at askholly.com or P.O. Box 97128, Raleigh, NC 27624