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

by Dave Ramsey

  Doing a monthly budget and planning for upcoming expenses are definitely important steps, but let’s not go overboard. I think it’s a great idea to get your teens used to budgeting, but don’t beat them over the head with their budget every month. Give them some freedom to make their own mistakes. Be careful to make this a positive experience for them so they can grow to love the process and benefits. If you stand over them and require monthly budget checks and mid-month budget audits, they could hit college and go into a “budget rebellion” that derails their whole plan. Remember that fine line between grace and legalism? It definitely applies to how you guide them in budgeting. But here’s the wonderful thing: If they can learn how to live on a budget at fifteen, then they’ll be ready to take on the world at twenty-five. There will be a confidence and dignity there that far too many young adults just don’t have.

  THE WEDDING BUDGET

  Even if you do the world’s best job teaching your child how to budget from age five through twenty-five, and even if your kid is great at writing out detailed budgets and tracking every expense, there’s still one big event looming out there that will really test how seriously you and your family take this whole budgeting thing. There’s one gigantic, life-changing party that’s probably sitting out there in your future, especially if you have a daughter. There’s a single day that can literally make or break years of budget training in your family. And guess what? It will also be the most emotionally charged time of your family’s life. Break out the checkbook, because it’s time to talk about paying for a wedding.

  My Big Day

  It should be no surprise to you that when the Ramsey girls got married, there was no blank-check, whatever-you-want-sweetie, the-sky’s-the-limit kind of attitude from my parents. They were so excited, and they loved my future husband, Winston, but Mom and Dad were obviously going to be realistic when it came to the wedding expenses.

  Winston and I dated for a year and a half before he popped the question. From the first day of our engagement, we started planning my . . . er, I mean our . . . dream wedding. Oh, who am I kidding? I had been planning my wedding for most of my life! I actually dressed up as a bride for Halloween when I was four years old. I watched Father of the Bride so many times that I already knew what I wanted my wedding to look, sound, and feel like. Yes, I had enough maturity to realize that the wedding is just one day while the marriage is for life, but still—I was ecstatic. My wedding was going to be beautiful!

  Mom and Dad took us out to dinner soon after Winston and I got engaged so we could all have the wedding budget talk. Mine was the first wedding in the family, so it was new territory for all of us. Because they trusted me with money and knew I had a lifetime of experience managing it responsibly, Mom and Dad decided to give me one final, enormous teaching opportunity: They let Winston and me run the entire wedding budget ourselves. They told us at dinner how much they would give us toward the wedding, and they actually gave us one check in that amount. As an extra incentive, they told us that we could keep any money we had left over after the wedding. I vividly remember Dad saying over and over, “Rachel and Winston, this is it. This is all the money we are going to give you. When the money’s gone, it’s gone.” Is this sounding at all familiar?

  That week, we opened up a checking account under both our names for the wedding budget, deposited the check, and got to work. Winston and I still kept our separate checking accounts for everything else, though. Managing the wedding budget together was a great exercise, but it’s never a good idea for a couple to actually mix their incomes and regular accounts until they are officially married. It’s sad, but things can still go wrong during an engagement. I’ve talked to ex-fiancées whose would-be spouses went crazy and destroyed the other’s finances as they were leaving the relationship. Don’t let your child get caught in that disaster. Of course, if Mom and Dad had concerns about Winston and me getting married, they wouldn’t have given us the wedding money at all!

  Over the next several months, everything went great. We ordered the flowers, booked the reception location, and I found the perfect wedding dress. Two months before the big day, there was only one item left on the list: chairs for the reception. I was getting ready to place that order when I stopped to check our wedding bank account balance. My heart sank. There wasn’t enough money in the account! I went into full Rachel-drama mode, complete with tears and some mild hyperventilation. My roommate said, “Rachel, calm down! Just call your parents and ask for a little more money.” I cried, “You don’t understand! They won’t give me any more!”

  I pulled myself together enough to call my wedding planner. We did what many couples today would find shocking: We started cutting things out of the wedding plan. The flowers in the sanctuary turned into berries and holly (which actually looked great for our December wedding). We decorated every other pew for the service instead of dressing up every one. We canceled the car service from the church to the reception. We cut every corner I could think of, but there still wasn’t enough left to get the chairs we needed for the reception. I was stuck.

  DAVE: She “needed” those chairs. Ha, ha, ha.

  RACHEL: Finally, torn between competing emotions of embarrassment and humility, I called home. I told Mom and Dad what happened and how hard I had worked to fix the problem, but I was still short. They told me that they’d discuss it and call me back. I can only imagine that Mom spent the next hour convincing Dad to help me out, because when they called back, they agreed to give me enough to cover the chairs. Dad was pretty clear with me, though. He said, “Rachel, this is the first, last, and only time we’re giving you extra money.” I was actually surprised, but I shouldn’t have been. My parents knew I had done everything possible to fix the problem, and they knew that I wasn’t running around spending money on all kinds of crazy things. We’d been having those discussions my whole life, so we knew we could trust each other. In their final budgeting lesson to me before I left their home for good, my parents chose to live out my favorite money principle: Too many rules is legalistic, but too much grace is enabling. I’m so grateful for parents who were able—and willing—to keep that balance with me throughout my life.

  If a daughter’s dream wedding is in your future, I want to make a few specific suggestions on how to handle it. Remember, this is going to be an extremely emotional time for all of you, so it’s best to make these decisions now while you still have a little perspective on things—before the emotion of realizing your little girl is getting married takes over!

  Set a Firm Budget . . . and Stick to It

  Put a specific, realistic number in place for the wedding budget. Do not try to wing it. If you do, you’ll get home from the wedding, add up all the receipts, and choke on your leftover wedding cake. CNN reports that the average wedding in the United States costs a whopping $28,000, but even that figure doesn’t include everything.2 When you add up the most common expenses, the actual figure starts to look more like $33,000–35,000, and that doesn’t even include the engagement ring, rehearsal dinner, or honeymoon. All these things add up quickly, so you should always know the upper limit of what you have (or are willing) to spend before you start. In budgeting terms, that’s basically what you’d put on the income blank, and all the items underneath are expenses.

  Pay Cash for the Engagement Ring—A Note to Guys

  DAVE: When Sharon and I got engaged, I made payments on her .29-carat diamond engagement ring. I was proud and didn’t think twice about financing. Now, thirty years later, that ring is a keepsake in our safe, and she has a much larger and nicer diamond that I paid cash for.

  Don’t do what I did all those years ago. Save and pay cash for the engagement ring. Make sure the ring you put on her finger is hers. Know your budget and only buy what you can afford. There is absolutely no correlation between the size of a ring and the success of the marriage.

  How Much Should You Spend?

  Since the average household income in America is around $52,000 and the average
wedding is around $28,000, I think a good guideline is to never spend more than half your annual income on a wedding. So a family that makes $80,000 and spends $65,000 on their daughter’s wedding is silly and out of control.

  If the rule is to spend no more than half, then spending way less than half is even better. Most of us know at least one couple who has been married for fifty years and got married on the preacher’s back porch with rings from a bubblegum machine. I have attended many weddings that were wonderful, creative, and cost less than $10,000. I really don’t care what the amount is for you. The most important thing is to have a limit and a plan—otherwise your sweet daughter might turn into Bridezilla and try to set a spending tone that can only be rivaled by Congress.

  A Wedding Is Not an Emergency

  If you have daughters, you might as well start saving for a wedding. Some families have a college fund and a wedding fund. This event is not a surprise, and it should not catch you off guard. The fact that our girls played “dream wedding” every other day when they were little was a good reminder for us to save and be ready. They both had beautiful weddings and married wonderful men, so it did have a bit of a fairytale ending.

  Give the Couple Their First Budgeting Team Assignment

  RACHEL: I think Mom and Dad gave Winston and me a huge gift when they handed us a check for the wedding—and I’m not talking merely about the money. Even though Winston and I both knew how to budget, we had never worked together on one before. Managing the wedding budget and checking account gave us experience working as a budgeting team for the first time, and that was priceless. I’m blessed that we had a great experience, but I also know plenty of future brides and grooms who would be shocked at what they would learn about their potential spouse if they went through this process. It’s great to talk about budgeting and money management in theory while you’re dating, but actually seeing how your future spouse makes real decisions with real money may be a rude awakening.

  If you’re able to give your child her wedding money in one lump sum like my parents did, I definitely recommend it. The value goes far beyond the dollars. In giving the young couple that budgeting experience, you are giving them a huge head start.

  Their Wedding Is Not Your Responsibility

  DAVE: Let’s say you are reading this and you have a daughter who’s engaged, but you simply can’t afford to pay for a wedding. The purpose of this section is not to make you feel guilty because you can’t write a big check for a dream wedding. You can only do what you can do. Regardless, you can lovingly guide your child by not going into debt for a one-day party, having a detailed plan, and coming up with creative ways to make the day happen. For example, we have some friends who asked a local farmer for flowers from her flower garden. The farmer was thrilled to help and made a generous donation of flowers, tons of fresh flowers. I have never seen so many flowers, and they were all free. Don’t let guilt lead you into stupid decisions and a pile of debt; just do what you can to help make it happen within your family’s budget.

  Use Budget Ratios

  RACHEL: No matter where the money comes from—her parents, his parents, or no parents—the couple absolutely has to plan a budget around whatever amount they have to spend. Debt is not an option. Nobody wants to still be paying for their wedding cake on their fifth anniversary! That means everyone participating in paying for the event (bride, groom, and parents) needs to sit down and look at the total wedding budget. And when I say “budget” here, I’m not just talking about how much your child can spend; I’m talking about how much they have to spend in each specific area. I suggest breaking the total budget into categories and applying a ratio for each area.

  As I worked on my wedding with my wedding planner, we kept some budget ratios in mind. But these aren’t hard numbers. You should set your own ratios based on what’s important to you. These are simply what Winston and I used.

  RECEPTION: I recommend budgeting 55 percent of your money for the reception, which is by far the most expensive part of the wedding. This includes the facilities, food and drinks, decorations, wedding cake, band or DJ, parking, and transportation.

  CEREMONY: I suggest spending 12 percent in this category, which includes the flowers for the ceremony (like the bride’s bouquet), location, and officiant. Many people go crazy spending money here, but it’s actually one of the easiest areas where you can cut expenses. When I had to cut costs out of my own wedding, this is where I started. I still had a beautiful ceremony, but I was able to trim some expenses out of my original plans just by tweaking my flowers and other church decorations.

  PHOTOGRAPHY: Plan on spending 10 percent of the budget on the photographer and videographer. You could save a lot of money by having a friend take the pictures, but I honestly don’t recommend it unless your friend is a professional. Wedding pictures will last a lifetime! You don’t have to go crazy here, but make sure you are getting quality pictures. Interview several photographers. This is one area where you’ll see a big price difference between professionals.

  WEDDING PLANNER: I recommend 10 percent for a good wedding planner. This is another area you could cut if you’re on a tight budget, but if you can afford it, I definitely recommend getting a quality planner. This is someone who eats, sleeps, and breathes wedding details, and she does it without all the emotion that a bride brings to the table. Having someone else manage all the details is a huge blessing.

  DRESS AND TUX: This is another area where many, many brides go nuts, but I recommend spending no more than 8 percent of the wedding budget on the dress and tux. Yes, I know there’s the dream of “the perfect dress,” but I personally believe the perfect dress is the one that makes the bride feel beautiful without breaking the bank.

  MISCELLANEOUS: Go ahead and plan 5 percent of the budget for the random, fall-through-the-cracks things that are a part of every wedding. These expenses might include bridesmaid and groomsman gifts, wedding bands, invitations, and thank-you notes. Be sure to include the marriage license!

  In all of these areas, please keep in mind that these are recommended percentages. If the couple cares a lot more about one area than another, then weight the percentages in that direction. For example, one of my friends was adamant about a particular (expensive) dress that she wanted, so she rearranged her budget around that dress. Another friend put a high priority on the quality of the food, so she spent more than recommended on that. The truth is: we don’t care how you divide the wedding money; we just want you to do it on purpose. If you raise one area, you have to bring another area down. If you go nuts and overspend in one area, that means you have less to spend in the other areas, so you’ll need to rebalance your ratios. These ratios will be a blessing whether you have a huge wedding budget or are trying to get it done on the inexpensive side.

  PLANNING MATTERS

  DAVE: Hidden in the bones of this chapter is the fact that you are teaching your child to grow into an adult—a mature adult who plans, budgets, is proactive, and does not act like a perpetual victim, waiting on someone else to fix her life. Budgeting nurtures maturity, which is necessary in so many areas of your child’s life. So start with that three-year-old and teach her that a few weeks of budgeted saving will equal a toy purchase. Then progressively become more sophisticated in your teaching until you have a college student who can manage her own bank account and, eventually, her wedding budget. And if you follow the principles in this chapter, the great news is you will not only raise money-smart kids, but you will also grow responsible, money-smart adults who are poised, confident, and who won’t be moving back into your basement when they are thirty-two.

  CHAPTER SEVEN

  Debt

  It IS a Four-Letter Word

  RACHEL: Well, this is interesting, I thought as the little piece of plastic sat there on the restaurant table. It was November of my sophomore year in college, and I was out on a date with a guy I had been hoping would ask me out. I had seen him around campus and we had many friends in common, so you could say
that I had developed a bit of a distant crush on him for more than a year. When he finally asked me out to dinner, I was ecstatic! He picked me up, and of course we both had the first-date nerves and anxiety, but the night went great. We talked all through dinner and really hit it off. Then the bill came. Now, I wasn’t some crazy money girl who made everyone around me follow my no-debt rules. I did, however, like to watch how other people handled their money, so I was interested in what he’d pull out of his wallet. Call it “professional curiosity.” That’s when the guy I’d had a crush on for over a year pulled out his Capital One credit card, complete with a picture of an eagle soaring across it. I half expected Dad to burst through the doors from the kitchen with his giant pair of card-chopping scissors!

  I thought, Oh man, this will be interesting if this relationship goes the distance. And sure enough, it did. That guy is now my husband, and looking back, we crack up about the fact that he paid for most of our dates in the first six months of our relationship with that Capital One soaring-eagle credit card. Obviously, once we got serious and marriage entered the discussion, we got on the same page about money. And no, I didn’t twist his arm to get rid of that card; he let that eagle soar off all on his own.

  DEFINING DEBT

  Our culture is confused about debt, so let me clear up the definition for you: Debt is owing anything to anyone for any reason. Credit cards? Debt. Car loans? Debt. Mortgage? Debt. Student loans? Debt.

  Prepare for the Lies

  I don’t know anyone who would come right out and say, “I absolutely love debt! I’m so glad I owe tens of thousands of dollars to the bank! I’m so blessed!” No, that’d be crazy. But what about: