Occasionally readers of The Informed Parent write asking us to address a particular topic. A recent request suggested that we offer ideas about raising financially responsible children. The topic is timely. Perhaps you have noticed that newspapers and magazines currently run articles about the numbers of Americans who live from paycheck-to- paycheck or who need to borrow in order to meet monthly living expenses. Articles also discuss the necessity of baby boomers saving for retirement. An even greater need is for their offspring, the GenXers, to begin providing for their own retirement years.
Most financial planners advocate having the living expenses of a few months tucked away in an easily accessible account for rainy day emergencies. Last month Bankrate.com surveyed 1,005 individuals and found that fewer than four out of 10 adults polled had an emergency fund. Such a fund was defined as having saved three months worth of living expenses.
Clearly there is concern about how citizens manage financially. The first is for the present and the second for the future. We live in a society where the cost of living is high, where people live longer, and where retirement and pension plans are less stable than once thought.
Managing money wisely and carefully is a skill that must be learned. It doesn't just happen. Children learn attitudes about money and ways of using it by watching their parents. They learn by direct and experiential teaching. Financial training must be an integral part of effective parenting if children are to learn the skills that will assist them in handling money well through out their lives.
Parent educators have varying views on how to teach children about money. The following ideas worked with my own children and other families. As with all effective parenting strategies, the key is open communication, consistency, and acknowledgment for steps toward success.
I imagine most of you have heard the words, "Mommy, I really, really want that", or "Daddy, pleeeease let me have it. I won't ever ask for anything again!" Sometimes such begging escalates to the point where you don't know what to do.
An allowance is an almost magical cure for such whining and an excellent tool for teaching children about money. It is money given to save and to purchase chosen items. It is not tied to household chores.
For a family to run smoothly each member needs to participate in the daily tasks without pay. The goal is to foster family cooperation. Extra money is appropriately earned by doing jobs above and beyond the daily expectations. An older child might wash the car or mow the lawn. A younger child could dust her room or sort the recycling trash.
The amount of money given as an allowance depends on the child's age. Children as young as three or four years might receive 10-to-25 cents a week while eight or nine-year-olds could receive 50 cents to $1.00 The amount given to adolescents will vary depending on what they are required to buy for themselves and on the degree of self-responsibility they have developed. Adolescents who are responsible for buying school supplies and some of their clothes need more money than those who are only responsible for pleasure items and entertainment.
Choose a day to give the allowance. Be consistent about giving it on the same day each week. Make sure to have the correct change. Children count on their allowance just as you count on your paycheck. Being consistent about using the same day each week and having the correct amount of money for each child builds trust.
When each of my girls was 16, their grandfather gave them the book The Richest Man in Babylon by George S. Clason. He believed it was a financial bible that would help throughout their lives. It proved to be useful to both of them. One of the tenets is to save ten percent of what is earned.
Teaching children to save one-tenth of their allowance builds the practice of saving. Saving in a piggy bank is fine. It is never too early to open a savings account. Even very young children enjoy going to the bank is deposit money. Learning the habit of saving becomes a life-long practice.
A second tenet in The Richest Man in Babylon is to spend within one's means. Learning to live within one's budget saves both financial and emotional woes. When children see something in the store that they want, ask, "Do you have enough allowance to buy it?" If so, discuss whether that is what the child really wants or if he would rather save money for a more expensive item that he also wants.
One of my daughters reminded me that we used a chart so that she had a visual reminder about how long it would take to save enough money to buy a particular thing. At the top of the chart, as a title, name the item and the price. Along the vertical side list the dates that future allowances will be given. Across the horizontal side and under the title, list how much money the child wants to save toward the object each week until the full price is reached. Each week, the child puts that amount of money away. When the final amount is reached, as soon as possible take the child to pick up his chosen treasure.
Every choice made in life results in a consequence. Children need to experience the consequences of their financial choices. Sometimes money is saved toward a desired object but half way through the process the child may decide to spend it on something else. The lesson learned is either he will not get the original thing or he will need to begin saving once again. Gratification will come down the line.
Protecting children from the consequences of their choices, unless they are injurious to self or others, or destroy property, inhibits their development toward maturity. A child may feel bad about a financial choice made. He may even express anger toward you for not rescuing him. This provides the opportunity for valuable discussion. It also teaches that he needs to think carefully before making a choice.
Discussing money at family meetings takes the mystery out of finances. It gives children the opportunity to participate in family planning and to hear how parents talk about money. Topics like choosing to go to the movies or to the water park can be a family decision. Children will say that they want to do both. Instead of responding with we don't have enough money, say, "Since we choose to save some of our money for outings later in the month, we can do one or the other." When parents talk about not having enough money or about being poor, children worry. If there is little money, again, it is better to discuss it in terms of making choices. "We are choosing to spend our money on new shoes for school this month instead of on the movies," indicates that you are in control of your finances and not a victim to them. When your language empowers both you and your children, you are engaging in effective parenting. You are also serving as a role model for children to become and remain financially solvent.
Loans can be a good way to teach responsibility. One should loan money if you are willing to insist that it consistently be paid back from part of each week's allowance. If a loan is made, the agreed amount is deducted from the allowance before it is paid, just like auto withdrawal is done from an adult's checking or savings account. This consistency is the parent's responsibility.
Only loan as much money as is reasonable for the child's age and developmental level. If preteens and teens ask for a loan, let them know that they will also need to pay interest. Interest need not be the current going rate, but older children and adolescents must know that it costs money to borrow money. Only make a new loan if an existing loan has been paid. Keep a record of the loan and payments in a place where you and your child can see it. You may want to put a limit on how many loans you will make in a given amount of time. Your goal is to teach money management. Sometimes that includes borrowing money for a short term. You do not want to teach living on credit.
Up to the age of adolescence, most children do not receive enough allowance to save for gift giving during the holidays. Sit as a family and tell them that you will provide each child with a certain amount of money to be used on gifts. Consider your own budget and what is appropriate for different ages. Remember, gifts are tokens of caring. It is the thought behind the gift, not the amount of money spent. Talk about budgeting and the necessity of not spending so much on one gift that there is not enough to meet all their giving requirements. Take them shopping to stores like The Dollar Store where they have lots of choices for little money.
If your finances do not allow for giving the children extra money, talk with them about how you make your gift-giving decisions. Use words like "choice" or "decide" instead of "have to" or "can't afford to". Saying, "We choose to make part of our holiday gifts instead of buying all of them" is wiser than saying, "We have to make some of our holiday gifts because we can't afford to buy something for everyone."
Many adults find talking about finances difficult. It is hard to teach children about money if you are not comfortable talking about it. The strategies suggested serve as tools to make your task easier. Effective parenting requires teaching children the skills of successful living. When children and adolescents learn to use money wisely and responsibly, they carry the knowledge into adulthood. The dividend is that the financial aspect of their life is likely to work well.
For more information, refer to the article, "Teaching Children About Money" found in The Informed Parent archives.