It’s that time again, the start of a new year when people all over the world are making vows to exercise more, to eat healthier, to call friends and family regularly, and to spend money wisely. These are, of course, New Year’s resolutions made by adults, but it is never too early to start teaching children good habits such as these. This post is about teaching children good money habits.
There are basically three money skills that all children need to learn. They need to learn about earning money, saving money, and spending money wisely. Some parents will want to teach their children about sharing money as well. The “how to’s” of teaching kids about matters of money vary depending on the age of the children. Below are some suggestions, which parents will need to tailor to match the developmental level of their children:
Earning Money. Even young children can learn the connection between “work” and “pay.” For this reason, it is a good idea to tie allowance to chores. For example, 8-year-old Ingrid is expected to complete three daily chores; every day she walks the dog in the morning and sets the table for dinner, and she has a variety of other responsibilities such as taking the recycling bins from the curb to the garage and watering the houseplants. She earns $4.00/week as long as she completes all of her chores. In addition, Ingrid’s parents sometimes give her opportunities to earn extra money by helping out with tasks that need to be done on a less-regular basis such as washing a car or weeding the garden. Ingrid’s parents are very clear that all members of the family have to pitch in to keep the household running smoothly. If Mom or Dad asks Ingrid or one of her siblings to help out with something that is not on their weekly chore list and is not part of a special chore such as weeding, the expectation is that the child will help out without expecting to be paid. So, for example, if Mom or Dad asks the kids to help bring groceries from the car or to turn the sprinklers off or to carry a basket of clean clothes upstairs, they are expected to help out simply because they are members of the family. Note well that it is essential that allowance be paid on a weekly basis. A child client recently commented, the moment that I used the word “allowance,”
Allowance won’t work because Mom and Dad never have cash so they promise to give us the money later and we always end up fighting about how much they owe us. Right now, they owe my brother and me about fifty bucks. – Alex, age 9
The solution for this family was actually rather simple. Each Friday, when Mom picked the kids up from school, it was Alex or her brother’s job to remind Mom to go by the bank to get cash on the way home. Now, the kids each get an allowance equal to half their age ($4.50 for Alex and $3.50 for her 7-year-old brother) every Friday, and there are no arguments about how many past allowances are in arrears. This has resulted in the kids being much more conscientious about their chores and much more willing to help out with special projects when given the opportunity to earn extra money.
Saving Money. For many children, this is a tough lesson to learn. They may understand that they will enjoy a $25 video game more than a $5 pack of baseball cards, but many kids will still buy the cards and then complain that they can’t ever afford video games. Here are some ideas to encourage saving:
- When allowance or birthday money is handed out, give your child 3 (or 4) envelopes, one labeled “Pocket Money,” one labeled “Future Purchases,” and one labeled “Saving” (and, if you are encouraging gift-giving and philanthropy, one labeled “Sharing” which is intended for gifts and donations).
- Ask your child to write items he would like to purchase on the outside of the Future Purchases envelope as a reminder to put money into the envelope on a regular basis.
- Agree in advance what portion of money earned will go into the Saving envelope and eventually into a bank account. The idea to “pay your future self” a portion of your regular income is an essential life skill that many adults struggle to practice.
- Take your child with you to the bank periodically to deposit the money from the Saving envelope into a kid-friendly savings account. Have her complete the interaction herself as much as she is able, and show her how her money is growing. CD’s are a good way to get kids to start thinking about saving as well as investing.
- For kids who are old enough to want expensive items such as game consoles and premium athletic shoes and concert tickets, encourage them to save by offering to match up to one half of the cost of the item. For example, Alex wanted to buy unnecessarily expensive soccer cleats so her parents offered to match up to $70. This encouraged her to save $70 and allowed her to get the $140 soccer cleats she was “dying” to have. It was also a win for Alex’s parents because they spent exactly what they were willing to spend on cleats, they were proud to see Alex saving and offering help with yardwork to earn extra money, and they knew that their daughter was learning important life lessons about money. It would also have been a win if Alex had decided that cleats she would outgrow in one season weren’t worth spending $70 of her own money (but that didn’t happen!).
Spending Money Wisely. It is a rare child who is naturally good at delaying gratification. This, along with the fact that kids are both easy targets for marketers and heavily influenced by fads, makes it difficult for young people to do the patient work of comparison shopping. Here are some strategies to help children learn how to get the most value for their money:
- For items such as clothing, that you intend to buy for your child, include her in the process. Say, for example, “The budget for back-to-school shopping is $150. We could go to Target and get many items for that amount of money or we could go to Hollister and get many fewer.” Go online and show her how much various items cost at each of the possible options. On a back-to-school shopping venture with my son, I pointed out that chino shorts at Target cost $19.99 and at Hollister, similar shorts (I couldn’t tell them apart!) cost $39.99. That meant 4 pairs of shorts at Target for the same price as 2 pairs at Hollister. I let him make the choice, and he decided on a combination – 1 pair at Hollister and 2 at Target.
- Model bargain-shopping by using coupons, purchasing items on sale, and visiting thrift and consignments shops when used items will suffice. Even if you can afford to buy everything new and at full price, there is no guarantee that your children will always have the means to do so.
- Differentiate between wants and needs, and be careful not to use the words interchangeably in your own language. Things that you need such as bread and milk or a pair of snow boots may mean a quick purchase at full price whereas you can be more patient about purchasing items that you want such as a new pair of jeans or a new electronic device.
- Avoid “fronting” kids money for unnecessary purchases with the idea that they will pay you back when they have the money. If you do this at all, do it very rarely and with a clear reason for making an exception. This practice is basically teaching kids to make purchases on credit. While a parent fronting a kid money may not be charging interest, the parent is still enabling and reinforcing a “buy now, pay later” mentality that often leads people into financial trouble.
Sharing Money. If you value gift-giving and supporting worthy causes, it is never too early to teach your children about these forms of generosity. Here are some strategies:
- As soon as your child has an income or access to money from birthday and holiday gifts, encourage him to allot a portion to the Sharing envelope.
- When your child is invited to a birthday party, have her contribute some money toward the gift and participate in choosing and shopping for it. Even if your child is giving a $20 gift, and she only contributes a couple of bucks toward the purchase, she will begin to experience the good feeling that can accompany this type of giving.
- Look for opportunities for charitable giving that match your child’s passions. For example, if a friend has cancer, it might be meaningful to your child to set up an Alex’s Lemonade Stand or to raise money for a walk-a-thon or race that raises money for cancer research. If he is passionate about animals, find organizations that support animal causes.
- Make charitable giving a family affair. If your child’s school is raising money to buy books for the library or to build a new gym, encourage him to make a donation, no matter how small. Match his gift as an incentive.
Kids learn many life lessons through “osmosis,” that is, they learn by observing what others do. If you, as a parent, are always mindful about your management of money, then it might not be so bad for your child to model his behavior after yours. Most parents, however, will need to be more intentional about the behaviors they model and the lessons they teach in relation to money. It is my hope that the ideas above will encourage you to take on a new challenge in 2015: teaching your children to earn, save, spend, and share money, which decidedly does not grow on trees!