Are home warranties worth renewing?

By Dave Ramsey

Kid got his first job, any advice for him?

Dear Dave,

My 14-year-old son just got his first job and is trying to take some of his own responsibilities with his money. What advice do I give him? What do I tell him, at 14, to do with his money? Should he buy his own school uniform?

Marticia

Louisville, Ky.

Dear Marticia,

That’s a good question. I’ve got a 14 and 16 year old myself and working with teenagers is a combination of advice and telling them what to do. When they have their adult brain plugged in, we advise them. When they have their child brain plugged in, we tell them. And depending on which brain is operating that day we can talk to them like a 4 year old or a 20 year old. It’s their choice.

Depending on who you’re negotiating with that day, we would advise them or tell them to give, save and spend. They need to do all three. They need to break the money up into three envelopes for those purposes.

Spend wisely and have teachable moments where Mom is involved in the spending. This doesn’t mean you can buy things that are against our household rules – you’re not coming home with green hair or body piercings, not at my house anyway – even if you made the money. I’m still the daddy. I didn’t lose that right just because you made a little money.

Then we’re going to have some giving, and let’s monitor that as well, because good, healthy, well-balanced people give money away. In a Christian setting it would be a tithe to your local church. That’s another teachable moment.

And then there is savings, and I recommend we start with setting a goal when it comes to saving. My 14 year old is saving aggressively for a car because otherwise she’s not going to get one. We’ve been financially blessed, so we have a matching fund we call 401(Dave). So I will match whatever they save. But if they save nothing, they’re going to be riding a bike.

As far as the uniform is concerned, I consider clothing something I buy as the parent. If they want to buy something a little fancier, a little more expensive than my household budget can afford, then they can spend their money on that. If they see a cool Starter Jacket that they want, I say, “No, dude. I keep you warm. You pay the extra $100 for that.” And we do that sometimes. I keep them covered in clothing that is reasonable and nice, but we don’t just go nuts-o.

Let him have some fun with it. The big thing here is not to create a boot camp for money, but let him have some teachable moments. Then after you’ve done that for a while, very quickly – like in the next year or two – open up a separate checking account for him. Balance it with him every month. My oldest child is extremely responsible and she’s had her own checking account for a couple of years and balances it to the penny every month. I showed her how to keep her records on Quicken and I still stand over her shoulder every time she balances it. If she misses writing down a deposit, a check or a debit card transaction, then we talk about how she has to keep up with that. I don’t want her graduating from high school and not knowing how to spend, to save, to give, to work for the money to do any of that and not know how to handle a checkbook. We want to send them out into the world having these tools, that’s parenting, but we’ve got to create teachable moments for all of this.

Dave


Is it worthwhile to renew home warranty?

Dear Dave,

I bought a house last July and it came with a home warranty. Is it worthwhile to renew that warranty for another year?

Shannon

Louisville, Ky.

Dear Shannon,

No. You do not buy extended warranties on cars, appliances or homes. Here’s why: 85 percent of the warranty premium is profit. It’s actually marketing costs. They pay huge commissions to the companies and if they have staff people, it’s profit. The reason is real simple, they run the calculation that if they insure 1,000 homes like yours against the breakdown of the heating and air or water heater or whatever it covers. They know about how many times they’re going to have to write a check and what that check is going to be. Out of 1,000 homes, they know it’s going to cost them so much and that’s factored in. So, as long as your home is average or slightly below average, you’ll do better by putting that money you would have paid them into your emergency fund. Because you get to keep it if nothing breaks. It’s just a form of insurance and it doesn’t work in your favor. Otherwise, it wouldn’t be profitable for them.

Dave

Disclaimer: Questioner’s identities have not been verified by Dave $ays column or this Website.


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