My son had been eyeing a new graphics card for his computer. The one he had was good, but he really wanted the next level up. He’s been working a little over 20 hours a week at his part time job as well as earning straight A’s in school. The card is expensive, but I didn’t see any reason why he couldn’t save up and purchase it if that’s what he wanted to do with his money. He’s required to save a certain amount out of each paycheck for his own car, and for college. But, if he could reduce his weekly spending and save up enough from his discretionary funds, he would be allowed to buy the new part for his computer.
A few weeks ago, he came out of his room and asked me to come look at something. He had found a graphics card in the class he wanted on sale, and wanted to know if he could get it. The problem was he would have to take some money out of his savings account to buy it as he hadn’t saved up enough from his spending money quite yet. It was a great sale, and it would have been a good thing for him to take advantage of the reduced price.
I gave him the green light to transfer what he needed into his checking account.
There was one condition, however. He had to replenish the money he took out of his savings account. I told him to think of it as a loan from himself, and loans have to be paid back. He agreed, and within a few minutes his new graphics card was on it’s way.
I took the opportunity to highlight two very important financial concepts that were used in my son’s quest to buy his new graphics card:
Having a Savings Account is Pure Awesomeness
Whether you call it an emergency fund, a slush fund, or just a plain old savings account, it provides financial flexibility. It can shelter your day to day budget from the blow of an unexpected expense. But it can also give you the ability to take advantage of an unexpected opportunity. My son saved over $150 on his graphics card by having extra funds available to cash in on the sale.
Treating Savings Withdrawals as a Loan Keeps You Financially Ready
Having funds set aside to handle an unexpected expense or take advantage of an opportunity is great, but you never know when the next expense or opportunity will present itself. If the withdrawal is treated as a loan that must be paid back as soon as possible you keep yourself financially ready for whatever life may throw at you next.
Instead of making him articulate a plan at that very moment as to how he would pay back his savings account, I wanted to see if he would handle it on his own. A few weeks went by with no action. He didn’t put any extra money into his savings account, and no mention was made of repaying his loan. Then something happened.
He came home from school and said he had negotiated the sale of his old graphics card. A friend stopped by and picked up the card, and a wad of money appeared on my son’s nightstand. I let it sit there for a few days before I asked him about it. He took off his headset, paused his game and told me that at some point he needed to stop by the bank and deposit it in his savings account to repay his loan.
I nodded my head as I walked out of his room. Lesson accomplished.
Do you use your savings to take advantage of a great opportunity? Do you treat any use of savings as a loan from yourself that must be paid back?
I love this Travis! So many important lessons for your son to learn and it is so great you’re taking the time to make sure he understands each step while also giving him space to take action himself. This will make a huge difference in his life, learning how to be a smart consumer and making good choices with money. And yes – learning to repay back his loan. 🙂
The really cool part is that he doesn’t look at me with the teenager eye roll….he actually listens to me with a look on his face like he respects what I’m saying and is taking it to heart. Crossing my fingers!
I love it that you held back on nagging your son to pay himself back. (I would have been tempted to do that.) SO encouraging that he consulted you, accepted your advice, and followed through. My 16-year-old daughter recently started working, and by the time I asked her about her first paycheque, she had already put half of it into her savings account. (Angel choir sings.)
I’m so glad that he eventually did something to repay it on his own……made a dad proud! As I’m sure your daughter did by saving all on her own! KUDOS!
*sigh, i wish my parents would have done things like this to me while i was growing up! Maybe i wouldn’t be digging myself out of debt like i am right now.
Sometimes all the lessons in the world don’t prevent someone from making their own mistakes….my parents taught me all the right things, but I found myself deep in credit card debt. You just never know….
Really interesting concept! I love this idea for kids. We do not have any at this time, but I would definitely consider doing this. It teaches a great lesson about financial responsibility and keeps them accountable.
I think it’s cool that you’re taking these lessons and tucking them away for later use – thanks for stopping by, Brittney!
I have definitely borrowed from my savings before. Nothing wrong with that! I don’t like to let my savings fall below a certain level anyway.
Exactly, that’s what it’s there for (although one has to be careful not to use it for any old expenditure….)…..as long as you keep it at a certain level as you mentioned. Thanks for sharing your thoughts!
You are so patient with your kids in these money lessons Travis. I don’t think my parents would have take the time to go through all of that with me.
After what Vonnie and I went through, I really want to make sure I take the time to do my very best in giving him all the tools he needs to be successful. As his parent, I owe him that much…..
Nice job teaching your son a lesson, and kudos to you for not saying anything earlier about him paying back the loan. I’m pretty sure I would have said something every single week until that loan was repaid, but obviously that would be a bad idea because your son would have thought “he doesn’t think I will do it without him nagging me.”
You have NO idea how hard it was to keep my mouth shut….every time I walked in his room and saw the old card sitting on the floor I wanted to ask him, “HEY, WHAT IS YOUR PLAN!?!?” LOL.
Whenever I have to take money from my savings account, I always tax myself 10%. If I take out $500, have to put $550 back. I’d much rather pay myself interest and build my account balance vs. giving it to the bank and making them richer.
That’s a good system, Generations Thrift Store. Not only does that give some incentive to NOT use your savings (it’ll cost you…..) but it’s a good way to grow your savings too!