Smart Money Smart Kids: Raising the Next Generation to Win With Money

by Dave Ramsey

  GET THEM OUT: AGES FOURTEEN TO COLLEGE

  When each of us kids in the Ramsey family turned fourteen, we graduated out of the Sunday night “payday” and into a checking account. Mom and Dad took the amount of money they would normally spend on us for entertainment, clothes, and other needs, and they put that amount of cash into our personal checking accounts each month. If the Ramsey teens wanted to spend more money, we knew where that money had to come from, so we got to work. Denise and I babysat a lot, Daniel did a number of odd jobs, and all three of us worked in Dad’s office during the summers. We were all busy with social events, school activities, and sports, but that didn’t stop us from working.

  Opening My Own Business

  When I was about fourteen, Dad sat my sister and me down and told us we needed to open our own business. As you can imagine, Denise and I blankly stared back at him with our fourteen- and sixteen-year-old eyes, thinking he was crazy. I said, “Dad, that’s nuts! Why in the world do we need to open our own business?” If you know anything about my dad, you can imagine him getting excited about the idea and going on and on about profit and loss statements, managing products, and learning how to be entrepreneurs.

  When we realized that he was serious, we started brainstorming how we were going to pull off our own business. Then we thought of the perfect job. At the time, Dad’s growing company was filled with more than 150 team members. Do you know what hardworking people really like at work? Food! I’m talking about chips, candy bars, nuts, cookies, and granola bars. And lots of soft drinks and bottled water to finish it off. Denise and I basically stumbled upon a goldmine!

  Dad always told us, “If you fail to plan, you plan to fail.” Translation: There was no chance that he would allow us to simply show up at the office and sell snacks out of a box. If this was going to be a business, we had to run it like a business. That meant before the owner (Dad) allowed us into his building, we had to write up a full business plan. Yes, I’m serious. That plan detailed where we would purchase the snacks and how we would pay for our start-up inventory (which Dad graciously donated to us), price our products, manage our stock, run our profit and loss statement every week, and even evaluate our competition. That’s right: competition! There were vending machines on each floor of the building, so we had to set our prices lower to attract customers.

  Denise had a car by then, so every week the two of us went to the local discount warehouse and fought our way through the crowded aisles pushing a flatbed cart stacked with candy bars, chips, cookies, and cases of canned drinks. I remember barely being able to push that giant cart because it weighed more than Denise and me combined! Once we finally got all of our inventory into the car, we’d drive it over to the office, borrow a hand truck from shipping, and unload the car ourselves. Then we’d make our rounds through all the different break rooms around the building, setting up and restocking our display racks. By now you may think I am joking, but this is as true as it comes.

  We replenished the snacks and soft drinks weekly, but Denise and I were both in school all day during the week, so there was no one left to “mind the store.” That meant we had to rely on the honor system. We posted our prices next to the displays and set out a collection jar for the money. There was only one rule for Dad’s team members: Don’t eat it if you can’t pay for it! That worked great . . . until the money came up short a couple of weeks in a row. I thought Dad was going to lose his mind. His own team members were ripping off his daughters! It’s kind of funny when we look back on it.

  That led to a quick rebranding of our little enterprise. From that day on, our business was known as “Your Integrity Snacks.” If someone was going to take something without paying, then they had to steal from a business called “Your Integrity”!

  For a few years, it seemed like Denise and I made a small fortune in loose change. I remember the first big purchase we made for the business was an automatic change sorter and money roller. We saved up for it and instead of manually putting each coin into a coin wrapper, we had this marvelous machine to do it for us. It was the best and only investment we made in Your Integrity Snacks. But every week we took stacks of rolled coins to the bank. And, of course, we had to keep our profit and loss statement updated, showing our gross income minus our expenses, which left us with a pretty nice profit every week—even after Denise charged me gas money.

  The snack shop idea was so simple, but it actually made some pretty good money for us. More than the money, though, it taught two young teenagers how to run a business, serve customers, and turn a profit. Looking back, I’m pretty sure that’s really why Dad suggested we do it.

  Jobs for Teens

  By the time I was a teenager, I really understood the work-money connection. And one thing I didn’t do was nickel and dime my parents to death. They took care of my necessities and a lot of fun stuff, too; however, I never assumed they’d just give me money for whatever I wanted to do. Parents, please understand when I say we weren’t little chore-working soldiers marching around the house. Mom and Dad maintained a great balance with us when it came to work. There were times when they would buy something for each of us and surprise us with unexpected gifts, but the overriding principle of work was taught and reinforced. My parents still raised me so that I knew that money came from work—not handouts. As an adult, I now see that as a truly life-changing lesson.

  Teens should always share the chores around the house, even though as parents of teenagers, you probably won’t use chore charts on the fridge to track their jobs. Whether or not you pay your teen a commission for the work he does at home is up to you, but either way, you should encourage him to find work outside the home. Whether it’s running his own lawn care business or working retail, this is when your child will learn how to work in the real world.

  An income of only home-based commissions gives your teen a safety net. That’s both good and bad. It’s good in that it reinforces the work-money connection in a safe environment, but if Mom and Dad are the only “bosses” children know, they won’t have the chance to learn other important lessons about working for—and with—other people.

  When I was a junior in high school, I had my babysitting experience and Your Integrity Snacks behind me, and I was ready for something new. One of my best friends worked at a store in the mall, and I thought it sounded like fun. So I got a job there during my Christmas break, earning barely above minimum wage. I will never forget getting my first paycheck after working four long days. I was shocked! Just picture a seventeen-year-old girl looking at a pathetically small amount on her paycheck and saying out loud, “You’ve got to be kidding!” I couldn’t believe how small the amount was after so many long days of work. That’s when I learned the lesson of “just above minimum wage.” I remember thinking I could have worked as hard babysitting and made double! I finished out the Christmas season and quit.

  I learned that I am wired a lot like my dad, and when it comes to work, I’m an entrepreneur at heart. I like working for myself versus a store-type setting. Of course, there’s nothing wrong with working retail or at the mall; in fact, that’s when I learned about filling out W-2 forms, filing taxes every year, and experiencing the crushing heartache of having the government take a quarter of my paycheck in taxes and Social Security. Those are great lessons for your teens to learn by working outside the home. You may discover that your kids are wired differently. While I didn’t care for those types of jobs, my brother and sister both worked in retail through high school and college. Don’t put your kids in a box. Allow them to get creative and find a job they enjoy doing.

  WORK MATTERS

  I’ve been working in one way or another my whole life, and I admit that sometimes I got a little jealous of my friends whose parents didn’t make them work for anything. Now that I’m an adult, though, I have a perspective I didn’t have back then. As I travel and talk to young adults, I can tell pretty quickly if they have parents who taught them the value of work or if they have parents who just g
ave them a twenty every time they asked. If I am talking to teens, I know after asking just a few questions whether or not they’re afraid of working hard to meet their money goals. Those teens and young adults who were never taught to work may feel pretty privileged at the time, but I can see the train wreck that’s ahead of them. The real world is going to smack them right in the face, and if they don’t learn the value of work, they’re going to be totally unprepared for it. They will fail.

  As a parent, when you don’t teach your kids to work, you are not being kind or gracious; you are being irresponsible. It’s your responsibility to teach your kids about both money and work. It’s not the school’s responsibility. It’s not the church’s responsibility. It’s your responsibility. Step up to the plate. The direction of your kids’ lives—whether or not they’re motivated to go out and win—starts with you. You are their biggest supporter and cheerleader. A solid foundation of hard work as kids can completely change their lives as adults—but that will only happen if you, their parents, get engaged and intentional about teaching them how and why work matters.

  CHAPTER THREE

  Spend

  When It’s Gone, It’s Gone

  RACHEL: “But Dad! Pleeeeeeease! I know I can win this time! I just need a little more money!”

  I’m sure the entire theme park heard my passionate plea for help. Looking back, people passing by probably wanted to hand me a few dollars just to shut me up. But no, I was out of luck—and money—for the rest of day. I had to walk around the fantastic Opryland Theme Park for the next six or seven hours in complete torture because I was penniless. And it was all my fault.

  Growing up in Nashville, one of my favorite things to do as a little girl was to go to Opryland. It was this awesome amusement park just outside of town that had tons of rides, games, and music-themed attractions. Think of it like a mini Six Flags powered by the spirit of Music City. Our family had season passes, so we went all the time when I was growing up.

  This particular trip, I was six years old. I’ve already told you that by age six, I was working hard at home, getting commissions for the items on my chore chart, and filling my Spend, Save, and Give envelopes with cash. According to my parents, I was making my own money, so I shouldn’t just expect them to pay for anything special that I wanted to do at the park. Before we left home, Dad had Denise (eight at the time) and me get the money out of our Spend envelopes. He reminded us that we had earned that money ourselves and we had set it aside to spend, so we could spend it however we wanted.

  My sister, Denise, had a big, fat Spend envelope because she never really spent any money. Crazy, I know. Anyway, she thought for a minute and said, “You know what? I don’t want to spend all of my money. I’m just going to take half of it and save the rest.” So she carefully counted out exactly half of her money, put it in her pocket, and left the rest in her Spend envelope. I remember thinking, She’s nuts! We’re going to Opryland for the whole day! Why on earth wouldn’t she take ALL her Spend money and have as much fun as possible? With that thought ringing in my head, I reached my fingers into my envelope, pulled out every bit of my money, and stuffed it in my pocket. I was six years old and going to my favorite amusement park with a pocket full of cash. The sky was the limit!

  As we walked across the parking lot to the front gate, Dad gave us the same little speech he always gave us before entering the park. He reminded us that the money was ours, so we could make our own decisions about what to do with it. Since we had a little money of our own, one of the “Ramsey Rules” was that we kids had to spend our own cash for any extra carnival games we wanted to play.

  Now, Denise was probably taking notes at that point. I imagine her hanging on every word, writing it all down, nodding her head and saying, “Yes, yes. That’s good stuff, Dad. I think I understand. You don’t have to worry about me. I’m going to make this money last and last and last. I’ll probably be able to buy all of us dinner on the way home tonight because I’m going to be so careful with my money.”

  Me? Not so much. I burst through the welcome gates eager and ready to spend some money! I wasn’t three steps into the actual park before my eyes landed on the very first game near the entrance. I ran over, slapped some money on the table, and took my turn. I lost. So I put more money down and took another turn. I lost again. And repeat. And repeat. And repeat. Then there was that terrible moment when I reached my hand into my pocket and found nothing there but lint and shattered dreams. I was out of money—at the first game! After only five minutes!

  I remember running back over to Mom and Dad, begging for more money. “I know I can win this time! I’ve got it all figured out!” This, by the way, is why I don’t gamble as an adult. It could get very bad, very fast. Anyway, they said no. I even ran over to my sister and said, “Denise! I need some money! Please!” She looked at me like I was out of my mind. By this point, I was crying and even ran back to my mom and said, “Please, Mom! I’ll pay you back later!” That’s right: I was asking Dave and Sharon Ramsey for a loan. You can imagine how well that went over!

  Then Dad looked down at me and said something that has stuck with me for more than twenty years. He said, “Rachel, when the money’s gone, it’s gone. Once you spend it, you can’t get it back. If you’re already out of money, you’re done for the day.” And I was. I remember spending the next six hours exploring all the free attractions at the park and watching bitterly while Denise carefully considered whether or not to play certain games. I’m sure I looked pretty pathetic for a while, and I probably drove them crazy with some dramatic whining, but Mom and Dad didn’t budge. For the rest of the day, I had to deal with the fact that I had wasted all my money on an impulse. Allowing me to understand that lesson at six years old was an incredible gift my parents gave me.

  DAVE: It takes tremendous strength and resolve to allow your kids to suffer the consequences of their decisions. They are persuasive, cute, and pushy, so it is really tough not to cave and say to yourself, Well, they are only children. Certainly there were plenty of times we intentionally bailed out a child who made a dumb mistake. But there were equally as many times when Sharon and I knew if we permitted them to fail while the outcome was under our control, we could keep our hand on the pain thermostat, allowing the temperature to get hot enough to teach the lesson, but not so hot as to do permanent damage. Parents who expect perfection in every decision and allow too much pain are as over the top as “helicopter parents” who hover over their children and never allow them to feel the pain that comes from dumb decisions. Sharon and I tried to strike a balance.

  Rachel is the most dramatic of our kids, so she often seemed to turn things into a melodramatic life-or-death discussion. That Opryland experience happened just as she described it, but from our perspective, it was not nearly as dramatic. She simply ran out of money and got no more, end of story. No amount of cuteness, whining, pouting, or persuasion changes the math. You are still broke. And you are broke because you did not control your spending, even after being warned. I meet fifty-four-year-olds who have still not learned this simple lesson.

  MONEY HAS LIMITS

  RACHEL: Money is finite. There is not an infinite supply. That’s something a lot of people have trouble remembering these days. In a time when crazy mortgages, car loans, student loans, and credit cards make you believe anyone can purchase anything at any time with no consequences, it’s easy to forget that money has limits. Whether your children are six years old at an amusement park or fifty-six years old at a car dealership, they will never win with money until they understand that money can—and often does—run out.

  To help adults get used to this reality, my dad teaches the envelope system along with the monthly budget. The envelope system is pretty simple: You figure out how much money you can spend in a certain category for the month, and when you get paid, you put that amount in cash into an envelope. So if you budget $500 for food, then you’d put $500 cash in an envelope and write “FOOD” on it. You use only that
money for food, and you don’t buy any food except with that money. When the envelope is empty, then guess what? You’re done buying food. It kind of sounds like what Mom and Dad taught me at Opryland, doesn’t it?

  That’s why I love for parents to use the scaled-down version of the envelope system we talked about in the last chapter with their young children. If you can teach them the limits of money from the beginning, they’ll be much less likely to go into all sorts of crazy debt as they get older.

  SPENDERS AND SAVERS

  Parents, here’s a shocker for you: Kids are different. They’re unique and act in ways that may not make any sense at all. As your kids grow up, you get the amazing opportunity of watching their little personalities develop. You also get to watch them interact with money. You’ll find out pretty quickly whether they are a natural spender or a natural saver. Maybe you read that line and immediately realized that your child is a spender. You might be thinking, Oh no! I have a spender! She’ll never amount to anything and will live in my house the rest of her life! I’m the world’s worst parent to have created a little spending monster!

  Okay, take a deep breath, dramatic parents. There’s nothing wrong with being a spender. You can take my word for it too, because I’m a pretty responsible adult—but I’m definitely a natural spender.

  I was the kid who couldn’t leave the grocery store without a pack of gum or get out of Target without a Slinky or some other little toy simply because I had a dollar in my pocket. If I had any money marked for spending, trust me, I spent it—fast. I’ve always enjoyed the act of spending money. Now, as an adult, that doesn’t mean I’m impulsive or irresponsible; it merely means that I’ve had to recognize that truth about myself and learn how to become a responsible spender. Yes, there is such a thing as a “responsible spender”!