In all likelihood, you are about to read the most influential parenting exercise in your child's life. What could possibly be so singularly important? Imagine motivating your child ...to develop a strong work ethic...to appreciate the principle of delayed gratification so that he or she works today for something tomorrow...to study daily with little or no prompting from you...to make the best possible grades...to save money regularly...to spend money wisely...to manage money responsibly... and even to appreciate the concept of taxes.
And, as if that were not enough, imagine yourself, as a parent, managing your child's expenses more responsibly...keeping a savings account for him or her...maintaining a trust fund for your child's retirement...teaching your child to pay for their own expenses....increasing your child's future financial security....and even improving your own money management skills in the process.
Does this sound too good to be true? Maybe...but it is quite possible and probable, if you implement the following reward program; I call it Grades that make Cents aka Centsible Grades. The program is designed for grades 7-12 because those are the years most important to your child's academic future. Parenthetically, I want to suggest that your child begin taking the ACT and the SAT each year, beginning in the seventh grade.
You are about to pay your child some serious money for their report cards. You say, you have tried this before...I don't think so!!! Most of the world leaves for work in the morning and returns home in the evening, typically a work day is 8 to 5, 9 to 5, etc. We want to develop the same routine for children. Our children begin school about 8:00 and return around 3:00. Research has shown that the most effective time for homework is shortly after the child returns from school; give them a snack, a short relaxation break, then begin homework. That homework period should be for 2-3 hours each days, five days a week, regardless of assignments; there is always something to read or review. The same holds true if the child is involved in extracurricular activities. Realistically, such children are overachievers, so their schedules will reflect longer hours.
Let me describe an example, a fictional 7th grader named Sam. Let us assume that Sam will make $400 for an A, $200 for a B, $100 for a C; and he will owe his parents $200 for a D and $400 for a F. Now, let us assume he has made 2 As, 3 Bs and 1 F. With those grades, Sam will make $800 for the two A's and $600 for the three B's and he will owe his parents $400 for the one F, which makes for total earnings of $1000 ($800 + $600 - $400 = $1000).
Should you have a child who performs poorly, one who would be in the negative figures, you may want that child to work off the “debt” with chores around the house. Alternatively, you could take away some of the things he or she enjoys doing the most. After all, television, X-Box, computer games, etc. are privileges, not rights. Parenthetically, I strongly encourage you to assess what your child thinks are rights versus privileges and adjust one’s attitude with behavior modification; (i.e. doing without). Determine a monetary amount for chores and playtime. I think minimum wage is appropriate because it provides a lesson in society’s value of one’s time without education. The value of time spent on chores or doing without certain activities is used to pay off the debt of those bad grades. This should sufficiently motivate your child to make better grades.
Now, choose a baseline for your child's grades; it could be last year's average or the grades from last term. Then, determine your child’s initial salary. You may want to play with various amounts until you determine an amount that is appropriate for your budget, yet sufficient reward for your child. The point is that you want to base the program's initial reward on current grades, give some return for current academic effort, and provide a significant incentive for better grades. Each year, you may raise the salary to provide a greater incentive and a greater reward. The long term goal is that your child earns more and more of the money that you will give him or her anyway.
Lets, continue with Sam, the 7th grader. His initial earned salary was $1000. Now, we take 25% ($250) of that and put in a tax deferred custodial account for college or later which he receives as an adult after the account has grown significantly. I strongly encourage an investment in mutual funds for the beginnings of a retirement account; tell Sam that money represents his taxes, so that he develops a healthy attitude towards taxation. Upon transfer years later, the parent can suggest it be kept as a tax deferred retirement account. Another 25% ($250) you put into a savings account that he can access with your approval; in this way, he develops a savings habit. If administered wisely by the parent, Sam learns to express his need for additional money based on reason and logic rather than emotion and impulse. The remaining 50% ($500) he must budget over the entire term, which gives him approximately $50 a week over the typical 9-10 week term. Through this budgeting experience, Sam learns the principle of delayed gratification and money management.
Again, the amount of Sam’s earnings increase each year as his parents include more and more of the child’s expenses. If properly managed by a parent, Sam will have learned to manage most all of his expenses, both necessary and discretionary, by high school graduation. Meanwhile, the parents will have put aside money for the child in both a savings account and a retirement account. Hereafter, college, trade school or life in general will be relatively free of the typical dilemmas and problems encountered by most young people. Sam will have become a genuinely responsible adult.
The principle of compounded interest should be mentioned here. Let us assume that Sam continues to make the same grades and earn the same money. He would have approximately $8,000 in each of his accounts by high school graduation; that's $16,000 in the bank. Now lets assume the parents continue the program through college and Sam continues to make the same grades with similar savings; and after college, Sam decides to continue the same savings habit. Mutual funds have averaged over 10% per year since the Great Depression of 1929, so we will use that figure for the retirement account and 8% for the taxable savings account. By age 63, Sam will have over $1,500,000 in the retirement account and over $750,000 in personal savings. We can make good habits or bad habits; the choice is up to you.
Through the Centsible Grades Program, parents teach children the skills most needed to survive, even thrive, in today’s world. Equally important, the parents learn many of the same lessons. They must set aside the money and administer the funds honestly. All of which forces them to budget, save, and invest as promised the child. Sadly, parents are in need of these same principles and skills. Fortunately, the program is such that the child will hold the adults accountable, an irony that should not be disregarded by the parents. And because the program is paid over the course of a school term, parents can pay the child and fund the other accounts over time. This consideration makes it realistic and affordable for most any family or single parent.