Wednesday, 10 February 2016 09:42

What Dave says about Allowance and Credit Cards

Written by  Dave Ramsey
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Q. Our son just turned 8 years old. Is it time to start giving him an allowance?

 

A. There’s never a time for an allowance, no matter the child’s age. In my mind, that kind of thinking is the best way to plant the seeds of entitlement. You want your son growing up with the idea that he’s owed money simply because he’s alive.

 

 

Instead, work out a plan to pay him commissions. Assign him weekly chores that are age-appropriate. Then, when the work gets done, he gets paid. And guess what? If the work doesn’t get done, he doesn’t get paid! Not only do we want to teach a healthy work ethic, but we also want him to learn that work creates money.


Of course, there are some things a child should be expected to do without financial reward. Everyone needs to pitch in and do certain things to help out when they’re part of a family. But once you’ve taught him about work, make sure to also teach him about the three uses for money—saving, spending, and giving.


Lessons on the basic handling of money are some of the best teachable moments you can have with your child. Not only does it make them more knowledgeable about finances, it helps them learn about life!

 

 

Q. I don’t understand why you don’t like it when people properly manage their credit cards and pay them off every month. By doing this, you pay no interest and in my case I even got a free trip to Europe from using my credit card. Please explain.

 

A. I truly doubt that I can explain it to your satisfaction, but here goes. First, the credit card company did not give you a free trip to Europe. They’re not going to lose money on transaction after transaction, year after year. The fallacy is that you feel like you’ve outsmarted a multi-billion dollar company that studies human behavior at incredible levels. You maybe, possibly came out ahead against them during that particular calendar year, but even that’s debatable.


Over the course of your life, you’ll spend more when using credit cards as opposed to cash. There’s plenty of research proving this to be fact. If you use a credit card repeatedly with the idea that you’re getting a free trip to Europe because you’re building up your miles, you spend more. An example would be McDonald’s. When they started taking credit cards years ago, they found that the people using them spent 47 percent more.


In a good way, you are very unusual. You’re not playing over in the stupid zone like most people who use credit cards. But both I and the credit card companies have found that, on average, your behavior would put you in a class of less than one-half of one percent of their customers. Can 0.5 percent of people handling snakes manage not to get bitten? Sure. But that doesn’t mean I’m going to start recommending snakes!
 

Last modified on Wednesday, 10 February 2016 09:49
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