It wasn't until about the fourth time that I gave my teenager an allowance advance that I realized I was nurturing her to become a bad credit consumer. Living free at home with no bills to pay, how would she balance a budget when she moved out on her own? Would she continue to borrow money in advance because she spent it all between paydays? Worst, would she constantly borrow money from me when I retire and live on a fixed income?

Over the years I had lectured her on the value of money, but I never explained to her the impact spending freely can have on her future needs--- getting credit for a home or auto loan, a low interest credit card, and even for securing a good paying job.

So when she asked for the latest allowance advance, you can imagine the shock on her face when I said it would cost her 20%, or she would have to wait until her next allowance. Naturally she asked why, and how I proceeded to educate her may be helpful to other parents.

First, I asked her to describe the home she would live in, the car she would drive, and how she would spend vacations when she was grown-up and on her own. After hearing her detail the enormous home, fancy sport cars and tropical vacations, I knew I had a task ahead of me. I needed to educate her without extinguishing her aspirations.

I asked her if any of her fellow teenagers constantly borrowed money from other teenagers. She said yes, and I asked her if she ever loaned money to any of her friends. She stated no, because it was hard to get the money back. I then asked her if she were a bank president and one of her money-borrowing friends came to her for a home loan, would she approve it? No way, was her reply, and it was clear that she grasped my point.

I then asked if she was a company president, would she hire a person who squandered paydays to manage her company's funds? No way, she responded again.

We then used a budget calculator to estimate how much money she would need to earn per month to buy the big home, sports car, and to take Hawaiian vacations every year. We also added other monthly expenses (groceries, clothing, insurance, utilities, etc), and totaled these figures. An easy way to do this is to use the free budget calculator at:
http://www.creditfederal.com/household-personal-budget.html

After seeing how much money she would need to earn, I asked her how would she achieve it, with her current bad credit history of borrowing money in advance? Who would give her a good paying job, and who would loan her money? Naturally she thought life was unfair and that it shouldn't cost so much to live and to buy things. I assured her she could achieve all that she desired, but not to rush. She had to live within her budget, save money instead of squandering every payday, get a good education and prove to employers and creditors that she responsibly handled money.

She now uses the budget calculator to estimate her future financial and lifestyle abilities when she works her way through college, and when she gets her first career job. She knows that initially she won't be taking as many vacations as she'd hoped and the sports car may have to wait, but she's still motivated to achieve those luxuries. And, just like a grown-up consumer rebuilding bad credit into good, she asked if I would pay HER interest whenever I was late paying her allowance.