Mad Money

“Queen Elizabeth Almost Broke!”

That was the tantalizing headline splashed all over the internet in recent days. Reports have surfaced that the queen’s cash reserves to take care of royal expenditures are down to £21 million and, assuming no change in Buckingham Palace’s current spending pattern, will be depleted by 2012. In response to her financial “crisis”, Queen Elizabeth has ordered preemptive cost-cutting measures to contain the royal budget so as not to anger British taxpayers and critics of the royal family.

Since the queen is eyeing her payroll with plans to whittle down her staff, my first thought was that Her Majesty should lose her milliner. What’s up with those fussy hats?! I’m slightly more sympathetic to the queen's other senior staffers, especially her top accountant, Sir Alan Reid, who has graciously accepted his own $20,000 pay cut. Additionally, it was decided that the leaking roof at Buckingham Palace won’t be replaced, but only patched, due to shortage of funds.

All kidding aside, I learned from various news outlets that although £21 million was no chump change, the queen did have queenly obligations that we commoners never had to think about, such as properly feeding dignitaries and heads of states. Noblesse oblige could be very expensive. After all, who’d ever imagine serving grilled cheese sandwiches to the Obamas?

In these tough times, the thought of the queen being put on a budget may make some of us commoners feel  better about our own crumbling finances, but upon further reading of this Washington Post article, one could feel a little misled, as it is pretty apparent that the queen is not exactly pinching pennies:

http://www.washingtonpost.com/wp-dyn/content/article/2010/07/07/AR2010070702255.html

In another illustrative case of “It doesn’t matter how much you earn; it matters how much you save”, reality star Teresa Giudice of The Real Housewives of New Jersey and her husband, Joe, were reported to have racked up debts totaling almost $11 million while keeping up appearances on the Bravo show.  Their remedy was to “look to the Bankruptcy Court for a fresh start.” Teresa was often seen on the show ostentatiously throwing around wads of cash and enjoying lavish shopping sprees. In a People magazine article, an acquaintance discussed Teresa’s spending habits with this fawning comment:  “Good taste doesn’t come cheap!” As evidenced by the gaudy decorating job commissioned for her daughters’ playroom shown below, I’d say it’s more like, “Bad taste could be ridiculously expensive!”

 Teresa Giudice and her daughters in their hot pink playroom

While I could be described as a reformed spender who has gradually shifted my position to view thrift as a virtue instead of a liability, I do take every opportunity to instill in my children a sense of financial responsibility. Fortunately, thrift comes naturally to every one of my kids except Lauren. Andrea doesn’t care for “stuff” and spends next to nothing on herself. Audrey would only splurge on her hobby equipment, such as a good camera, which she uses almost daily, but is super conservative about money in every other way. In her 18 years, she has never asked me for a single designer item of any kind. Although Audrey is a fashion addict, her fascination with clothes has more to do with her creative urge to put together unique outfits rather than the common teenage obsession with brands. Kiet is both frugal and responsible… he would often decline his monthly allowance, saying he wanted to earn his own money instead.  In his second year of middle school, he amassed a small personal fortune selling candy and homemade knickknacks to his friends. Kiet's peddling operation became so successful that it caught the attention of school administrators, who shut it down. Kiet has since declared his intention to get a job at Bank of America as soon as he’s eligible to work.

Lauren, however, knows one brand from another and loves to shop!

In an effort to teach my children about money, I recently opened student bank accounts for all of them and made initial deposits equal to a year’s worth of the kids’ respective allowances in each account. This was meant to help them learn to manage a small sum of money so as not to deplete the funds before the allotted time. The kids received online banking instructions with a focus on how to access their account information and keep watch on their balances. At the three months’ checkmark, the older kids were all doing fine and still had plenty of cash to spare. Lauren’s account was the last to be opened, since she just turned twelve this January. In the beginning, she had a total of $300 in her account from my annual deposit of her $25/month allowance, and her own debit card to access the money that was supposed to last her until January of 2011. After a recent trip to the mall to buy a birthday present for one of her friends, Lauren reported to me that one of her debit purchases was declined.

When we got home, I made Lauren go online to verify her transactions. As it turned out, she had created a user ID and password the same day her checking account was opened as I’d instructed, but has not viewed her account activity since.  Her recent rash of small purchases at the mall came through just after her balance went down to zero and triggered a corresponding number of overdraft charges in the amount of $35 each. As a result, her account balance was now an alarming negative number. I explained to Lauren what has happened and she became alternately frantic and despondent when she realized she had effectively pre-spent a whole year’s allowance without knowing it.  Judging from the stricken look on Lauren’s face, she must have felt like she was facing personal bankruptcy and badly in need of a bailout.

Normally chatty and fearless, Lauren became timid and anxious when told she needed to speak to a Bank of America customer service rep to resolve her problem. We agreed that I would advance $300 to cover the shortfall in her account, but Lauren had to forfeit her allowance for the next year. In addition, she would have to negotiate with BoA herself (with my coaching) to straighten out the mess of overdraft charges. Any money she recovered would be hers to keep, but she couldn’t count on another bailout from me and stood to lose both her checking account and her debit card if she again failed to guard her balance.

It took two phone calls and an embarrassing plea admitting ignorance and first-timer's mistake, but Lauren eventually managed to get two of the fees waived. That’s $70 back in her bank account and she had no choice but to make it last as long as she could, especially because she knew she would be out of mad money until Christmas or Vietnamese New Year, when she’d likely receive a fresh infusion of cash gifts from various adults in the extended family. In a way, I was happy my material girl didn't get off scot-free! I believe Lauren has learned her lesson and was both grateful for my help and relieved that she was able to navigate the first bump in her road to financial literacy.

Lauren, all anxious on the phone...

Elated!