The linked article by Dr. Charles Fay of Love and Logic rings true for me. Their philosophy had a profound influence on my parenting style, partly because it made sense and partly because it amplified who I already was. When my daughter was 17, she got her first car. I decided to pay up front and then have her reimburse me for her portion. Since I was always looking for an opportunity to teach a relevant financial lesson, I created a promissory note.
|Amount due if loan was from actual bank||$750||14%||0.6667||$70||$820|
|Late fee $25 if payment is not made by the 15th of the month|
|Payment due Date||Amount Due to Bank of Mom||Balance due|
|10/1/2010||$ 100.00||$ 650.00|
|11/1/2010||$ 100.00||$ 550.00|
|12/1/2010||$ 100.00||$ 450.00|
|1/1/2011||$ 100.00||$ 350.00|
|2/1/2011||$ 100.00||$ 250.00|
|3/1/2011||$ 100.00||$ 150.00|
|4/1/2011||$ 100.00||$ 50.00|
|5/1/2011||$ 50.00||$ –|
She didn’t like my idea very much. In fact, her response was “You are not the bank, you are my MOM”. Yes, that was true. But I was not just ANY mom. I was the kind that wanted to make sure that she had been provided with a real life education. By setting up a plan that created a penalty for late payments, she chose to pay off her car early rather than risk having to pay any late fees to the money grubbing Bank of Mom! My bank didn’t charge interest, but showing the interest rate that would have been charged by a different bank helped make The Bank of Mom more desirable than its competitors. No late fees were paid to The Bank of Mom and for that I was grateful. I wasn’t looking to augment my income; I was intending to create a self-reliant young adult.
The promissory note contained the components that would be evaluated in a regular bank loan. It wasn’t always convenient to track the payments so meticulously, but I kept it up since I knew it would be good for the wonderful young lady I was trying to mold. I took my job very seriously! Following is the schedule used to record the payments along with additional terms of the loan. The ending message was issued with the loan release to the borrower. Unlike the real bank, the Bank of Mom dispenses a few words of praise and encouragement along with the title.
|Car loan||$ 100.00||$ 100.00||$ 100.00||$ 100.00||$ 100.00||$ 250.00|
|Insurance||$ 54.00||$ 54.00||$ 54.00||$ 54.00||$ 54.00||$ 54.00|
|TV||$ 7.00||$ 7.00||$ 7.00||$ 7.00||$ 7.00||$ 7.00|
|Cell phone||$ 30.00||$ 30.00||$ 30.00||$ 30.00||$ 30.00||$ 69.00|
|License Plates||$ 97.00||$ 50.00|
|Kelsey Paid||$ 188.00||$ 191.00||$ 191.00||$ 191.00||$ 191.00||$ 230.00||$ 300.00|
|Borrower will pay on time each month or pay a $25 late fee. Just like a bank loan, she is responsible to repay the loan even if something happens to make the car undriveable or if it isn’t her fault. The payment is due on the 1st of every month. There will be no reminders. There is a grace period of 2 weeks before the payment will be considered past due.|
|Kelsey-borrower||Borrower signed under protest|
|Mom-lender||Gleefully signed by Mom|
|Kelsey paid off her car 3 months early. Congratulations for being a conscientious borrower!|
|Be proud and always remember how good it feels to earn what you really want.|
I couldn’t be more proud of this young lady today. She chooses to forge her own path in life and does not like to be told what to do. Her life is not devoid of struggles, but she accepts responsibility for her actions. Don’t be afraid to swim upstream and do what many parents are afraid to do. If you do it with love, they will be better prepared to face the realities of life. And don’t worry, they’ll still love you!