Gail Vaz-Oxlade's Blog, page 73

What Are You Doing Right Now?

I think one of the biggest problems people have when it comes to their money is figuring out what to do with it. Yes, there are the bills to be paid. But for only a few people do the routine bills eat all the money. Many others have disposable income that disappears every month, even as they are a'wishin' and a'dreamin' about what their lives could be like.

So think for a minute: what is the one thing you wish you could do, have, be? What reoccurring "I want" do you have in your life?

Now think about how you're spending your money right now. Is it to make your "I want" a reality? If it isn't, THAT'S why your "I want" is still an "I want." You aren't doing anything about it. And you're letting less worthy stuff intrude into your "I want" space.

People tell me all the time "I want to get my debt paid off" or "I want to buy a house" or "I want to able to travel" and their I want statements are quickly followed by "but".

There's no BUT. Either you do want it or you don't want it. Quit your vacillating. Do you or don't you want it?

If you do want it then you will do everything you can to make it so. You'll cut all the spending you do on crap. You'll get an extra job. You'll get what you want.

The only way you won't get what you want if you're only pretending to want what you say you want. Then you'll go out for dinner twice a week, you'll spend money on coffee, tea and beer, and you'll buy every little nonsense that catches your eye. You'll also keep whining about the fact that you can't have what you say you really want.

I have met so many people who decided what they wanted and made it so. A lot of them wanted to be out of debt and they managed to pay off huge amounts of the yucky stuff with focus and attention to the details. It's actually pretty awesome listening to some of the stories.

These are Joanna and Joseph Average in every way except their determination. They know what they want and they get it. It isn't easy – hey, life is full of ups and downs – but they persist. And they achieve.

If you've been I-wanting for a while now, and you haven't I-got yet, you may have to ask yourself some tough questions about just how important your I-want really is. Hey, if it's just some pipedream and you're not committed, let it go. You'll be happier living in your right now

But if it's something you do really want, what are you doing Right Now to get it?

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Pleasures

I have a line on my budget called "Pleasures." It's where I put the money I spend getting a massage, buying those delicious ginger/peach candles and anything else that I want to splurge on in a month. I guess I should put all the wonderful teas I buy under this category, but I put them under "food" leaving more space for self-indulgence (as long as I stay within my pre-set parameters for both).

Journalists are always asking me what I spend money on, I guess because I'm The Debtonator! (my sound-guy, John, came up with that one), and I'm constantly signing the "don't spend money you don't have" song. But there are things I love to do, so I budget for them. And I set some money aside each month for things I just feel like splurging on.

As long as you're not going into debt, and you've got all your bases covered – including long-term savings, your emergency fund, your insurance needs – you can spend your money on anything you want. Want to travel? Go. Want to drink expensive coffee? Do it. Want to buy a new sumthin'or'nother? G'head. You work hard for your money and you should enjoy the pleasures it can bring you.

The only time spending becomes a problem is when you do it unconsciously and it interferes with your financial goals. You can't eat out four nights a week if you want to save up a downpayment on a home. And you can't buy everything your heart desires if you have no emergency fund. Take care of the details and then you can go shopping guilt-free.

What if you're still experiencing pangs when you buy yourself the extras? It could be a couple of things:

Maybe you've been in austerity mode for so long you need to readjust to the idea that you can afford to splurge now, or

Maybe you shouldn't be buying what you're buying because there are other, more important things that should come first.

Keep in mind that for your pleasures to feel like pleasures, you can't do them too often. If you love picking up a magazine at the checkout to enjoy with your Saturday morning tea, grab the mag. But if you aren't reading those magazines, or just flipping through them quickly because you bought them – so there's no really pleasure – stop buying. You need to go without for a while so you can reset your pleasure meter.

Being able to take pleasure from the things money can buy is part of having a balanced financial life. Don't take the desire to enjoy too far and you can keep enjoying for a long time. And if you have to forgo a treat for a couple of weeks because things are a little tight, your pleasure will be all the sweeter the next time you indulge.

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This & That: Making Progress Edition

The questions I get are so often fraught with stress and pain. It's lovely to focus on the people who are making progress, turning things around, taking control.

Kate Wrote:  My current situation is as follows: I do not have a mortgage (I rent), I don't have a car payment (no car), I don't have any TFSA's but I do have $30,000 in RRSP's and $8,000 in savings. I also have about $6,000 in consumer debt. The consumer debt has been negotiated at 0% interest until May 2012 and, since I am making $600 monthly payments, I anticipate that I can pay it off without incurring interest.

I work for the Federal Government and we've recently signed a contract that discontinues our severance package. We will not lose any of the severance we have already earned, but will not receive any future benefits. We've been offered a number of choices with regards to our current severance earnings. My severance package is worth approximately $22,000. (1) I can opt to receive my severance when I cease to be employed by the Federal Government. If I choose this option, my package will earn approximately 1.5% per year. I am 15 years away from retirement. (2) I can cash-out the amount, either in full or in part.

I am leaning towards the cash-out because I may be able to get a better interest rate if I self-manage the money, though I would love to hear you opinion.

As a Federal employee, I have a pension that will pay 70% of my salary when I retire. With 70% of my income, I will remain in my current tax bracket after retirement. The standard advice by experts — that your RRSP's will be taxed at a lower rate when you start withdrawing from them — will not apply to me. If I were to cash out my severance benefit, I am unsure as to whether I should transfer it to my RRSP's to avoid tax right now (I currently have $24,000 in unused RRSP contributions), or whether I should pay the taxes now and transfer the remaining balance to a TFSA so that I'm not taxed on future growth. Gail, which option do you think would be more advantageous?

If I cash-out the severance, I need to ensure that I have 3 months of expenses available to me immediately upon retirement, as I'm told it can take months before you begin to receive your pension.

Wow, with writing this question, it suddenly occurs to me how far I've come. Three years ago, before I start watching your shows and reading your books, my finances were a nightmare, my net worth was in the negative, I had no savings and I was having trouble paying my bills. Woot-woot, look at me now!!

Gail says:  A 1.5% return isn't much, particularly over the very long term. I'd take the money and roll as much as I could to an RRSP. Then I'd manage my taxable income carefully, taking just a little each year from the RRSP to trigger as little tax as possible and moving it to a TFSA.

You have come a very long way. You should be very proud of yourself. I certainly applaud your focus and your commitment. Well done.

J Wrote:  I am 30 and my wife of three years is 28, and as of May 31st we will be completely debt free. House paid for and the whole thing!  Well we have known for some time that this day was coming and for the past 5-6 months have been wondering what now?  So Gail, what now? We both make decent livings and all of the normal "trappings" of life, such as kids, stay at home mom, retirement, charitable giving, are all well within reach. We need a new financial goal.  Thanks in advance for any advice you can give.

Gail says:  Wow, that's quite an accomplishment. Well done! Clearly you were both focused and working together. Okay, so what's next?

Hey, this may be the perfect time to do those things that bring you joy, teach you something new, or let you share with someone you love.  Using your money to strengthen bonds with family and friends is a great way to increase your happiness quotient. Studies have shown that close relationships have a lot to do with how happy we feel. So maybe it's time to spring for a trip to see your old high-school chums or university roommate. Or you could offer to bring your sister and her family to your place for visit. I find saying, "My treat" let's people who are themselves financially strapped consider doing things that they'd love but simply couldn't afford.

Using your money to reduce your stress is also a good "investment." If you and your partner are working hard, busy with the kids, and can't find time to do the vacuuming, maybe spending a little of that extra money to come home to a clean house will be worth it to you. And if you're tired of yelling at your mate to get the garage, the basement, the shed cleaned up, hiring someone to do the dirty would eliminate the need to nag.

You could also take some of that money and spend it on someone else.  Making other people happy has this fabulous rebound effect. If you could help ease someone else's burden, or just bring a little unexpected joy to another's very difficult life, the gift you give will be returned to you in spades. Would you child's teacher appreciate a gift of some new books? Would the elderly in the local home appreciate a bunch of new movies to wile away their countless hours?  How about building a treat basket for less well-advantaged neighbours and leaving it on the doorstep with a note that says, "I'm having a great day, hope you have one too!"

If you're looking specifically for a financial goal, I suggest you and your wife sit down and brainstorm some of the things you both have on your Bucket List. Do you want to travel? Are you interested in owning a holiday home (personally, I don't get the two-house thing). What are your dreams and wishes? Then pick one and start a planned spending account to accumulate the money to make your dream come true.

E Wrote:  My husband and I love your show! We like to watch your show because it makes saving and budgeting cool. We are in our early 30's and we have a 2 year old daughter. My husband works and I stay at home with her, although I occasionally do consulting work from home when a project comes my way. We pay very close attention to our spending and saving, and we have no consumer debt besides a car loan.

Our monthly spending fits well within your budgeting guidelines (per your spreadsheet: housing is about 29%, transportation cost is about 11% to 13% depending on how much gas we use). Additionally, we both have generous life insurance and my husband has disability policies, both long term and short term. All in all, our monthly expenses are low, and we're not a family that requires a lot of frills to be happy.

We believe our savings are in good shape. We currently have 11 months of net income cash saved for emergencies. Every month we save 16% of our gross income for retirement, and we've already saved about $300,000 with 30 years to go before retirement. We are saving $600 per month toward our daughter's college education. We bought our house 2 years ago with a 30-year fixed rate mortgage at 4.79%, and we have about 25% equity. We own one 3 year old car outright, but we bought a 2nd car 6 months ago with a loan. We could probably sell the car for around $25,000 and we currently owe $19,000 on a fixed 4.9% 5-year loan.

Our question to you is this: We would really like to remodel our kitchen for approximately $17,000. By about March of next year, we will have $17,000 cash while still achieving all of the other savings we mentioned. We are wondering if we should instead pay off the car loan first and wait yet another year to redo our kitchen. We had planned to take a family trip to Disney World that year 2 years from now, but I guess we'd have to put that off too. Car loans fit squarely in the transportation category, but you also point out on the show that they're debt. We know we're spending about $49 a month on interest, although that decreases every month. Are we being reckless to remodel when we should be paying off debt? Also, if we spend the $17,000 on our kitchen next year, we won't be able to add any to our emergency fund. Does that seem reasonable? It seems a little unclear to us how you classify car debt. Can you give us some more information about that?

Gail says:  My, you've got all your i's dotted and your t's crossed, haven't you? If your car fits into your transportation budget (as it seems to) then don't sweat it. While debt-free is the ultimate goal, you're doing fine and don't have to put everything else in your life on hold. The fact that you'll have saved the money for the kitchen means you're very serious about keeping yourself out of the red. I would not call you reckless. If you feel that you've got everything in balance and want to go ahead with the reno, then that's what you should do. If you're going to kick yourself in the pants for not paying off the car first, then make that your priority. I'm not going to make the call for you because it's your money and your life.

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Small Change

It's the little things that make all the difference in the world. Decide to make a small change today, and in a few months you'll look back and wonder why it was ever a big deal to make that change; it just seems so "normal."

That's the idea behind the pay-yourself-first approach to saving. Increase your TFSA contribution by $20 a week. Com'on, $20 a week is only $5 a day during the work week. Over 35 years that $20 a week will grow to almost $58,000 if you're earning 2.5% on your money. Earn just 1% more and you'll have over $70,000. Hey, that's got to be worth $20 a week! (Contrary to popular belief, interest rates won't always be as low as they are today.)

But the small change idea goes beyond saving. You can apply it to so many parts of your life. Walk around the block once a day to get started on a walking program. Soon you'll be able to do it two, three, four times.

Take one Saturday a month to cook up a batch of food for the freezer so you have yummy food ready when you don't have time for week-night meal prep. In no time at all you'll fall in love with your own cooking again (you'll have to spread your wings to keep it interesting after all), and you'll re-embrace the slow cook approach to meal prep.

Up your monthly mortgage payment by $50. That's not so much, is it? $50 a month is manageable, right? Over a 25year amortization at 5%, you'll save over $13,000 in interest.  Wow!

Change doesn't have to be dramatic to really be worth it. Small changes (like those coins you pile in the jar for that annual family vacation) can grow into significant new-and-better.

What one small thing will you change today?

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How You Doing?

Friends has been a staple in our household for almost a decade. Unfrickin' believable that those six kids can still make me laugh. Every time Alex needs a couple of hours of decompression, in goes a Friends DVD. Several years ago when Lisa Kudrow was on Ellen, they played the "What's your next line?" game. Ellen played a clip from the show and Lisa had to tell her what the next line she said was in the show. Lisa got 2 out of 5 right. Alex got 'em all.

The show had a lot of iconic moments. One of my favorites was when Joey would say in his deep, sultry voice, "How you doin'?"  It was the line that melted girls' panties. So funny.

So pretend I'm Joey for a moment: How you doin'? No, I'm not trying to denude you with Joey magic, I'm just asking: "When was the last time you took stock of where you are and how you feel about it?"

1. Are you happy with your income?  Do you feel like you make enough money, or do you know you're not bringing in enough to support the lifestyle you want?

2. Are you spending less than you make? This is Gail's Rule #1 and it's the only way to be solvent. So, is your spending below your income? Do both you and your partner see eye-to-eye on this issue? Do you even know how much of your income you're spending and on what?

3. Do you have any consumer debt? This is the bane of a healthy financial foundation. Consumer debt is money you spent on stuff… money you haven't yet earned. Credit itself isn't bad… but debt (using that credit and not paying it off) is. If you're relying on overdraft protection, a line of credit or your credit cards to get you to the end of the month, you're in trouble. And if you don't have a plan to get that consumer debt gone in three years or less, you're in denial.

4. Do you have a healthy emergency fund? You need six months' worth of essential expenses (that's ground beef not sirloin steak) in the bank in cash. A line of credit doesn't count.

5. Have you got enough of the right kind of life, disability, and critical illness insurance you need to ensure that if the worst does happen you (and your family) are covered?

6. Have you made a Will and executed Powers of Attorney for both financial and personal care? What, you think you'll never die? Nothing bad can happen to you because you're a good person? Grow up!

7. Are you saving enough for retirement? You can count on government benefits if you think that's all you'll need. But if you live above that standard now, and you don't want to be old and BROKE, you better start setting a little sumthin' sumethin' aside now, dontcha think?

8. Are you paying the least amount of tax possible? Okay folks, if you're giving the tax-man one red cent more than you absolutely have to, you're dumber than a sack of hammers. Use an RRSP to trim your taxes. Use a TFSA to earn tax-free return. Use an RESP to grab money from the tax-man for your kids' education. Claim all your deductions. Keep your receipts organized. Get familiar with the tax booklet while you have your morning poop.

9. Is your money invested in the best vehicle for YOU? This is where I depart from all the other investment Spurts. I don't think "you should be in equities" or that "you need to be earning more on your investments." I'm the girl that says you need to buy investments that suit you based on your level of understanding, your time horizon and your risk profile. Don't let anybody talk you into anything. Buy what you know will work for YOU. But when you do, make sure you're buying the best thing available. (If you still have your savings in a traditional bank earning next to nothing when there are other options offering a half to a full percent more in interest, you're a dope.)

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Who Loves Ya Baby?

I know I'm dating myself. Anyone remember who used to say this? It was like the ultimate stamp of approval. Despite the fact this the saying has gone out of fashion, the search for approval is alive and well and living in so so many of us.

People will do the darnedest things to not be disliked. Hey, not everyone can love you. And if that's how you measure yourself, the stress of keeping up may kill you. At the very least you'll go broke!

No matter what you do, there will always be someone who thinks differently.  Some people are quite happy with the "you do your thing, I'll do mine" approach to living. Some people feel the need to belittle anyone who doesn't think as they do. Some people will square-off for a fight to prove to you that they are right. Oy!

To keep your balance you have to focus on doing what you know in your heart is right.  Never mind what other people think. Never mind what other people say. YOU are the one that gets to decide who you are and what you want.

I remember when Alex was small and came home from school one day in tears because some kid had called her a name. I hugged and kissed the tears away. When she had stopped sobbing, I asked her, "Hey, if I called you a rock would that make you a rock?" Her glassy brown eyes looked up at me. "Just because someone calls you something doesn't make you that something, does it?" She shook her head slowly. "You know who you are. Are you a rock?" She shook her head. "Are you a tree?" More head shaking, vigorously now. "Are you a chocolate cake?" Now she was laughing.

The lesson stuck. I used it again with Malcolm when it was his turn to experience the pain of being called an awful name at school. Hey, dealing with name-calling is a rite of passage at school. And it doesn't end there.

Recently someone called me an old battle-axe on a blog and on twitter. She also said I was "morbidly obese." Ha! Can you imagine how my heart would have broken if I was of a mind to take seriously all the crap that people throw (anonymously, by the way).

I'm not totally impervious. I work with a woman whom I once considered a dear friend. Over time, however, when I heard the way she spoke about other people we knew when they weren't in the room, I realized (perhaps a little slowly because I really liked her) that she was probably saying equally nasty things about me when I wasn't around. It hurt to realize that someone I thought had my back was just as likely to be stabbing me. (Turns out I was right to be wary, but that's another story.))

"To thine own self be true." That's one of the mantras by which I live my life.  There will always be people who don't like you.  There's nothing you can do about that. As long as you like yourself you'll be fine. Course, that does assume you know who you are!

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McElligot's Pool

This wonderful book by Dr. Seuss is nothing less than a celebration of positivity. A lot of research has gone into the area of Positivity of late. We know being positive means being happier. We also know it brings wonderful health results. And all it takes – easier said than done, of course – is a shift in attitude.

When a farmer happens upon a young lad named Marco fishing, he calls him a fool and tells him, "You'll never catch fish in McElligot's Pool!" But the boy is not deterred, despite the famer's laundry list of reasons why there are no fish in the pond.

There will always be people in your life who tell you that you can't, that what you want won't happen, that you're a fool for having dreams and believing they can come true. If you listen to those people, you'll put away your fishing rod and go home. Too bad! With a little imagination and some effort – it always takes effort – you can have what you want. If you really, really want it.

And that's the gist of McElligot's Pool. Marco doesn't give up just because he's given a litany of reasons to do so. Nope. Instead he imagines all the wonderful possibilities. And you should too. This is your life. This is the one you've got. You can make of it whatever you want.

Positivity opens us. It let's us see more roads, entertain more options. Barbara Fredrickson, in her research on positivity, has demonstrated that when people are put in a positive frame of mind, their outlook expands and they can see the big picture. When they're first made to experience something neutral or negative, their peripheral vision (yes, their actual peripheral vision) shrinks.

If you can change the way you see whatever happens to you – if you can see negative events as temporary, affecting only part of your whole life, and not being ALL your fault — you'll create more positive energy and hope for yourself, no matter how difficult or negative the circumstances with which you must deal. So arriving at a polluted pool won't stop you from imagining all the fish you may catch.

Martin Seligman, a psychologist with the University of Pennsylvania, wrote a book called Learned Optimism: How to change your mind and your life. He believes that optimism isn't just an innate trait — something that we're born with – but can be developed even in the face of difficult circumstances. At the core of Seligman's learned optimism is one powerful idea: Your thoughts influence your feelings and your actions. And you can choose your thoughts.

Listen to the naysayers and you'll make them right. Believe in yourself and look for the opportunities to make the life you want and you can find fish in McElligot's Pool.

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If You Had to Pay More

If you had to pay more for an item because you were buying it with a credit card, would you still use your credit card or would you revert to paying in cash?

When merchants accept payment from you in the form of a credit card, there's a cost associated with that. Merchants pay somewhere between 2-4% of the sale price in any transaction for which they accept a credit card.

Let's say you go into a store and buy an item for $50 on your credit card. You'll owe your credit card company $50. But the merchant won't get $50. She may gets somewhere between $46 and $48. The rest is shared (not necessarily evenly) between the merchant's payment processor (someone like Visa or MasterCard) and the shopper's credit card company (most often your bank).  The credit card companies make a killing on the fee they charge retailers – upwards of $4.5 billion in 2008 – and retailers can't do a thing about it.

The kind of card you use affects how much the retailer gets dinged. Premium cards carry higher fees from the credit card company. So if Bank of Nova Scotia is offering a premium card with big cash-back options, know that every retailer you use that card with is eating a bigger service fee for accepting payment on that card. That's how The Bank can afford to offer you so much "cash back".

According to a Bank of Canada survey, on an average $36.50 transaction, the cost to the retail for taking a credit card was 82¢ or 2.25%. Bigger stores pay less since the cost of an electronic transaction falls as the volume increases, which means smaller retailers pay a disproportionately higher cost for accepting your card.

So why don't retailers offer a discount to people using cash? It's a good question. They can. And if they want to reduce their costs, they should. After all, if they're paying 3% in fees, they could offer the customer 2% off and still be up on the transaction. In the U.S. there are states that require retailers to display both the cash and credit price of an item. And some retailers offer a significant discount – up to 5% — to customers who use cash rather than plastic.

Since the price is the same for those paying cash as for those paying with credit, it has been argued that those people who shop with cash are actually supplementing those who use credit cards. According to one report by the Consumer Payments Research Center in the U.S. "On average, each cash-using household pays $151 to card-using households and each card-using household receives $1,482 from cash users every year."

Wow!

Retailer's only recourse to deal with the ever-increasing costs of processing card payments is to increase their prices to everyone. The result: those people who can't afford premium cards and so don't benefit from the rewards actually end up paying more. One report says the lowest income households (those making less than $20,000 a year) pay $23 a year, while the highest income households (those making $150,000 or more annually) receive a subsidy of $756 every year.

So, how do you feel about those reward cards now? Does it prickle your conscience to know that you might be contributing to the disparity between rich and poor? And as someone who uses a reward card, would you be willing to put it away to send the message that you disagree with equal pricing for all types of transactions?

What if there were one day every month when everyone put away credit and paid with debit (which is actually cheaper for merchants than when you pay with cash), would you participate? Want to start a trend?

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3 Allowance Mistakes to Avoid (Part 2)

There are some Spurts who believe that giving kids an allowance without tying it to chores or work sets a bad precedent. I don't hold this view. In fact, I believe you send entirely the wrong message when you take this approach.

Mistake #3: If you don't make your bed you won't get your allowance this week. Who pays you to do the chores in your home? Chores are a part of each individual's responsibility to the family. Payment for regular chores negates a child's individual responsibility as a member of the family unit. Payment for extra household tasks – those above and beyond a child's normal chores – is fine when they are specifically doing the task to earn some money.

The biggest problem in tying your child's allowance to the completion of her chores comes on the day when you must withdraw the allowance. Now you're teaching your child, "I have the money and you'll have to do as I say to get some of it!" That's a straight-out power play. "I have the money, so I have the power." Ouch, not a lesson you should want your kids to learn.

A far better tack for children who don't follow through on household responsibilities is to do a like-for-like comparison. "Hunny Bunny, if you don't make your bed, I'm going to have to. And I only have time to do one thing, make your bed or make your lunch. Which one do you want to do?"

Or how about: "Sweetheart, we don't always feel like doing our chores, but what if I didn't feel like driving you to soccer, should I just say 'take a hike'?"

So back to the big question: Why are you giving your kids an allowance?

To learn how to manage money responsibly, children need an income they can rely on – one given at regular intervals and in denominations they can manage. The experience of handling a steady flow of cash will teach many fundamental skills, including how to manage a cash flow, how to plan ahead, setting goals and how to save to satisfy a goal. With your guidance, an allowance can also be used to teach important lessons in borrowing and lending, the pleasure derived from generosity, and how to be a good consumer.

The strings attached to money you got as a child will have a strong impact on the strings you attach to your children's money. Perhaps you were never given an allowance and had to work for every penny you got. If you had to put yourself through college or university working at the local carwash on weekends, and waiting tables at night, this will no doubt colour the way you look at money in general. If your allowance was tied to chores, or you were required to save all the money received as gifts, you may see that as the "normal way to do things".

Whatever your own experiences with money as a child, put them aside as you begin to teach your children how money works and the role it should play in their lives. To ensure money is not imbued with meanings it should not have, don't tie things like self-esteem, power or love to money. Stay balanced when you talk about it. And, above all, figure out what message you want your children to take away from your money lessons. Like it or not, they are learning from you. What lessons are you teaching?

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3 Allowance Mistakes to Avoid (Part 1)

Isn't it funny how most people have no problem doling out money to their kids. But when it comes to what we should require of our children in exchange for all that dough, the debate rages. Some people like the idea of an allowance that has no strings attached. Others think any money a kid gets it's grubby little hands on should be earned. We tie money to behaviour. We tie it to grades. We tie it to chores.

From early on children receive mixed messages about money. They watch us spend money in so many forms and for so many reasons they form their own twisted and delusional ideas about the purpose and use of money. And if mom and dad are fighting about money, well, that brings it's own lessons. They're eager to soak up any direction a parent will give in terms of the role money will play in their lives. And if you point them in the wrong direction, they won't know. They'll just follow your directions to money hell.

Mistake #1: If you don't smarten up, I'll cut off your allowance! Money doesn't work as a reward for good behaviour. Just ask any of the management theorists who have proven that money is not a motivator for adults. So why should it be for children? Good behaviour is based on an understanding of right and wrong, thoughtfulness, caring and consideration, along with myriad other positive attributes, all of which have to be internalized. When you tie money to behaviour you're sending the message that compliance is the way to get money. All well and good if you want your little ant to know her place in the corporate hierarchy later on. But if you want a child who grows to be a confident and creative adult, compliance isn't the lesson you want to teach at home. And money shouldn't be your two-by-four.

Mistake #2: I'll give you $20 for every A you get on your report card. Good grades are your child's responsibility. School is his primary job, and good grades are an indication that he is doing his job well. If you provide financial reward for good grades, you are externalizing the reward. Instead, the reward should be internalized: the self-esteem and pride that accompanies having done well.

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