Kids and money is always a hot topic. There should be more education in schools, but the best place for kids to learn about money is the same as it’s always been; at home. Therein lays the problem in a lot of cases. Money is difficult enough to talk about as adults, now add children to the equation. If you were not taught basic money skills as a kid or you do not have a great relationship with money, you may be setting up your own children (unintentionally) for money disasters later.
The only way kids will learn to manage their money is through their own experience and the guidance you, as parents, may give them. In other words, they learn from trial and error and role models just like the rest of us. And if they can’t learn as children, the price of adult mistakes can be great in terms of money and relationships. I counsel adults on a daily basis because of this.
Just as no two kids are alike in their attitudes toward money; many parents have different ideas and beliefs about how to handle money. I see so many couples operating with their own different beliefs that it becomes difficult to teach their kids as it can turn into an emotional debate that most parents would rather avoid. The end result unfortunately is that the kids can leave without a solid foundation around money that they desperately need.
“So what do I do as a parent?” Well the first step is to give them an allowance. Why? Because having a regular amount of their own income is the only way kids can learn to manage money. They need to be able to make mistakes when the cost is minimal. When kids know that there are limited funds it forces them to think about how much things cost, and then make spending choices between the many things that they may want and need. This will help them have more appreciation for the things they buy when they use their own money.
“So when do you start?” When your kids start to show both an interest in and an understanding of the concept of money, and they get the fact that they need money to get ‘stuff’; then they are ready to start learning the basic skills of money management. It could be as young as three or four and I recommend that their first allowance should be given at a minimum of once a week.
“How much should I give?” Some would say a dollar for each year of age. Others would suggest you match the amount their friends get. When coming up with the amount, try this; determine how much money you already give them. If your kids don’t get allowances, you are managing their money for them by deciding what they will buy and what they will do. Let them learn to manage their own money. Total up the amount you are giving them now. Give that to them as an allowance and let them make their own decisions. Once you have the amount, sit down with your child and make a list of everything they are expected to pay for so it is clear what you as a parent pays for and that they pay for what they ‘want’. This process puts an end to the constant requests to buy this and that and to give them money to do whatever their hearts desire. As their needs change, so can the amount. Be open to reviewing it when appropriate.
“Should I tie allowances to chores?”Some parents believe that their kids should do chores in order to receive their allowances and they don’t want them to view an allowance as an entitlement. I believe that kids should understand that doing chores is part of membership in the family. If you use this approach towards responsibility for household chores, then you can add ‘jobs’ that will allow your kids to earn additional money: raking leaves, washing windows, mowing the lawn, washing the car, or doing heavy-duty cleaning. Only you can decide which approach; hands-off, chores for pay, or compromise; is the best for your kids and your family. But whatever you decide, it is important that you stay consistent.
I love this story: “We don’t pay our kids to do chores, but we do pay other family members to do chores when one child isn’t doing hers. For example, when my son was 10, he left the house without making his bed for several days in a row. So we had his 7-year-old sister make his bed for him. On allowance day, we gave our son his allowance, and then he had to turn around and give his sister 50 cents for every day she made his bed. Not only did he lose money, but he also had the pain of giving his money to his sister. He never left his bed unmade again.”
Remember, the purpose of an allowance is to give your kids the opportunity to learn how to manage money through their own successes and failures and the input of their parents. Next time I will talk about how to get your kids to start a ‘spending plan’. Stay tuned and please share any of your own tips that you may have that could help others.