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This is going to be a long post, so brace yourself. I have been doing a lot of reading about personal finances in the last year or so, and since one of my goals this year has to do with Money I figured that I would share with you, an article that I found interesting. I found the Original article at the online version of the Smithsonian Magazine. The article highlights a Memo / Contract between a father and his son. The memo was written on the first of May, 1920 :

May 1, 1920

Memorandum between PAPA and JOHN. Regarding an Allowance.

1. Beginning with May 1st, John’s allowance is to be at the rate of One dollar and fifty cents ($1.50) per week.

2. At the end of each week during which John has kept his accounts accurately and to Papa’s satisfaction, the allowance for the succeeding week will be increased ten cents (10¢) over the week just ended, up to but not beyond a total per week of two dollars ($2.00).

3. At the end of each week during which John has not kept his accounts accurately and to Papa’s satisfaction, the allowance for the succeeding week shall be reduced ten cents (10¢) from the week just ended.

4. During any week when there have been no receipts or expenditures to record the allowance shall continue at the same rate as in the preceding week.

5. During any week when the account has been correctly kept but the writing and figuring are not satisfactory the allowance shall continue at the same rate as in the preceding week.

6. Papa shall be the sole judge as to whether an increase or a decrease is to be made.

7. It is understood that at least Twenty Per cent (20%) of the allowance shall be used for benevolences.

8. It is understood that at least Twenty Per cent (20%) of the allowance shall be saved.

9. It is understood that every purchase or expenditure made is to be put down definitely and clearly.

10. It is understood that John will make no purchases, charging the same to Mama or Papa, without the special consent of Mama, Papa or Miss Scales [a family governess].

11. It is understood that when John desires to make any purchases which the allowance does not cover, he will first gain the consent of either Mama, Papa, or Miss Scales, who will give him sufficient money with which to pay for the specific purchases, the change from which, together with a memorandum showing what items have been bought and at what cost and what amount is returned, is to be given to the person advancing the money, before night of the day on which the purchases are made.

12. It is understood that no governess, companion or other person in the household is to be asked by John to pay for any items for him, other than carfare.

13. To any savings from the date in this account which John may from time to time deposit in his bank account, in excess of the twenty percent (20%) referred to in Item No. 8, Papa will add an equal sum for deposit.

14. The allowance above set forth and the agreement under which it shall be arrived at are to continue in force until changed by mutual consent.

The above agreement approved and entered into by…….

One of the things that I find very interesting about this memo is that you can see the father setting the foundation for a solid finical future for the son. The father is teaching the son sound rules of personal finance and we see how :

• Rule number 2 and 3, track you daily expenses. If the son does a good job of accounting for his expenses, then he gets a $0.10 raise for the following week, and via rule number 3, if not he gets a $0.10 deduction. Lesson learned : Tracking your expenses is the only real way to know where you spend your money, and how much you have.
• Rule number 7 shows the importance the father placed on charity. Many people have a different opinion as to the level of charity, but giving to charity or causes that you believe in is important. Lesson Learned: Giving to charity is important.
• In rule 8 we see the father stipulate that the son must save 20% of his allowance. Lesson Learned: Saving is important, even if the amount is small, start saving now and not tomorrow.
• I feel Rules 10 and 11 are really important. The father is teaching the child the first lessons about credit. If you can not afford it, then you can not buy it unless it is approved by Mom or Dad. Lesson Learned: Credit can be a useful tool, but needs to managed well, and should not be used carelessly.
• In rule 12, we see the father letting the son know that he should not expect anyone to bail him out. He is to cover his own expenses. Lesson Learned: At the end of the day, its up to you to make sure you have spent your money in a wise manner.
• And the last lesson is in Rule 13. In rule 13 we see the father reiterating the importance of saving, by offering the son a 'double your money' offer for all monies over the required 20%. Lesson Learned: Saving is really important, and is a habit that should be started young and then reinforced.

One of the things that impresses me the most about this Memo/contract is who the father and son actually are, John D. Rockefeller, Jr. and his son John D. Rockefeller the 3^rd. John Jr. was the son of John D. Rockefeller, the Oil tycoon. Famously tight with money, John Jr. was able to give over $537 million dollars to charitable causes in his lifetime. John D. Rockefeller the 3^rd was 1 of 6 children and went onto become a notable philanthropist in his own right.

Hope you enjoyed the article.

Ian

P.S. A $1.50 in 1920 dollars is equivalent to about $18.00 2008 dollars according to Tom’s inflation calculator. The $0.10 increase is equivalent to about a $1.20.