In this world of fancy packages, machines that spit out money and easy finance, how do we teach financial responsibility and the value of money to our children? How can we prepare them for the day that they step out with a few boxes to begin a life on their own?
One sure way to learn about money is to have it, on a regular basis. Allowance is a great teaching tool. A set income that children can count on is essential to developing financial cents-ability.
Many parents believe that an allowance is a privilege that is earned for good behavior and completing regular household tasks. Because of that, lots of children are in the hole with no spending money! This can become nothing more than a power issue. Money is held back until the child performs or the child doesn’t perform until they see the cash. "What are you going to give me for it?" One big problem with paying kids to do chores is that once they have their own source of income, they stop helping. After all, if you were paying them to do the job then it really wasn’t their responsibility. I believe children should have a basic allowance which they always receive regardless of behavior and chores done. If they do not have this, they do not learn how to budget or to spend money wisely.
If you have a child that won’t help out, find other privileges to remove. Things such as television, computer time or free time to hang out with buddies. It might sound like this. "When you have emptied the dishwasher, then you can "watch your show, or go out the front door and invite your friend over." "When our family has finished with our weekly clean-up time, then we all get to go off and do something we enjoy." Keep the money out of it unless it is a responsibility that goes beyond the normal expectations.
How much money and when? I believe the saying goes "When they are old enough not to eat it." I say four is a reasonable age to start. How much depends on what you expect them to buy and your comfort level. As children get older, they need more money. I like to use the equation of giving a child their age in dollars every two weeks. If they are six, they get $6.00 every second week. To be consistent, correlate it to your payday. This eliminates sibling disputes about who gets what and provides them with enough money to suit their needs. As they move into the teen years, they can be given a larger budget for clothing, school supplies and so on.
All responsibility is given gradually with practical hands-on teaching about banking procedures, sales tax, savings and other related topics. Of course a four year old won’t understand the math but watch how quickly they learn when money is involved. There comes a point when parents need to step out and let their children make their own decisions about what they do with their money. It might be hard watching them spend their money on dumb things, but have some faith that eventually your kids will figure this out for themselves. Best to experience the natural consequences of overspending as a child of 10 than at 25 with a high limit credit card. By the way, don’t become a Visa mom or dad. Lending money between allowance payments just gets them used to borrowing rather than waiting it out. Avoid the temptation to give children more money as a loan or a gift if they have spent all their allowance on treats or movies. They won’t learn to budget if you keep bailing them out.
Children really appreciate something when they buy it for themselves. It gives them a sense of ownership and pride. Kids really do think twice when the money is coming out of their own wallets. I believe giving an allowance helps us step out of this overindulgent trend that is so easy to get pulled into. Let’s face it, kids have a lot of stuff today. If they aren’t buying it with their own money, you must be footing the bill. Allowance builds in delayed gratification. Sure, you can pay half for those bigger items.
Buying a child something when you can’t afford it and resenting it later will have negative effects. Overindulgence is a sure-fire way to set your child up for financial disaster. Many parents of adult children state their regrets of having overindulged their children. One father commented that while his daughter (27) worked hard at two jobs; she would spend her money on elaborate things and beg her dad to bail her out when she couldn’t pay her rent. He confessed that as a divorced dad he raised her with a large dose of parental guilt.
What is your relationship to money? Children will learn a great deal from you. Watch the messages that you pass on. Do you impulse buy or do you plan your larger purchases? Do you overspend and then stress about it later? A child may feel frightened when they see you getting upset about money matters. Children need to know your doing okay and that they will be taken care of. Keep heated discussions about money away from the kids. Those are adult issues.
Finally money and teenagers. Giving them a living budget to work with will prepare them for the years ahead. Sit down with them and discuss their needs. Negotiate a budget and stick to it. They will learn to work within that framework. They may think twice about the $160.00 running shoes. This also eliminates ongoing battles about money (hopefully). At some point, they may take on a part-time job and you can pull back on your contributions. There may even come a point where they pay you a little rent.
I don’t agree with forcing a child to save part of their allowance. I really believe that it is important for children to get to that place themselves. Having a bank account of their own can be very empowering. My son asked for one at the age of 9. By the time he was ten, he saved a couple of hundred dollars and earned himself a debit card. With this new responsibility came some external rules and slowly he gained full control. Now both my children have bank accounts and cards. They wait for their bank statements to arrive in the mail as eagerly as I used to wait for the ice cream truck. We didn’t force them to save a percentage of their allowance. This is coming from an internal desire to watch their money grow and have a sense of independence.
As far as charity goes, introduce your children to the concept of a spectrum of wealth. The concept is this: There will always be people richer than we are, and there will be people poorer than we are. What can we do to help those who have less? It may not be a financial offering. It might be an act of good will like cutting an elderly neighbor’s lawn or volunteering for a worthwhile cause. I find children have generous hearts and when they make choices to contribute it is genuine and fulfilling.
Remember that children are not fools, just younger people. Teach them, give them time and trust them.
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