A recent CNN Money article sited a recent study that stated kids on average receive a $15 a week allowance from their parents. That equates to about $780 a year, enough to buy an iPad or a good video game system with several games if the money was saved. The study found though that most often the kids are saving very little of their money. Sadly in many cases I think this is a reflection of our society in general as most adults are very poor savers.
So what is the answer? How do we teach our children to handle money? What should we be teaching our children?
Money comes from work
One of the first big lessons our children need to learn is that money doesn’t magically appear. Money comes from work. When we do our jobs, we get paid. If we don’t show up for work, chances are we aren’t going to get paid. Learning to work is a very important lesson our children need to learn.
Commissions as opposed to allowances
One of the decisions that we made in raising our son was not to give an “allowance”. A weekly allowance that is given with no expectations required sounds suspiciously like welfare. Instead our son has certain tasks that he is required to do each week. If he does them he gets paid. If he doesn’t choose to do them he doesn’t get paid. His commission is based solely on the work that he does.
Now this “work” should be reasonable and age appropriate. I’m not talking about setting up a boot camp,but a few selected chores that the child is capable of doing to help around the home are perfectly fine. It helps them to begin to associate in their minds that money comes about as a result of work that is done.
This also doesn’t mean they should expect to get paid for every little thing they do around the house. Some things you do just because you are a part of the family and it is an act of service and love. But choosing a few select items that they are responsible for and for which they get paid if they do them makes for a very healthy lesson.
Learning to manage their money
I think perhaps the thing I found most disturbing about the CNN article was the fact that these kids are being allowed by their parents to spend almost everything they receive. I believe very strongly that it is our responsibility as parents to teach our children how to manage their money. That doesn’t mean they’ll always make the best decisions as they grow older, but chances are much better that they will if we have done or best to teach them while they were young.
There are really only three things you can do with money. Give it. Save it. And spend it. You should be doing some of each of those with your finances and we need to teach our children to do the same.
It is very important that we teach our children to be givers. There is a huge difference between grabbing a dollar out of our wallet and handing it to them for the children’s offering as we make our way in from the church parking lot as opposed to them giving a dollar that they earned with their own work. In the first case, they are really nothing more than a courier. In the second their character is being shaped toward a giving spirit.
One of the fundamental keys to personal finance is that you must learn to spend less than you make. Children should have some longer-term savings goals that they are putting money away for. Often times saving for their first car might be a good goal or perhaps saving for their college education. If you can help them to begin to think about long-term goals at a younger age they will be far ahead of their peers as they enter their adult life. Again this should be age appropriate. Obviously a 3-year-old sees and understands things differently than a 13-year-old.
Lastly it is important that they do spend and enjoy a certain portion of the money that they earn. Some of this can be spent on a day-to-day basis. I think it is also a good idea to mix in some short-term savings goals at this point. Maybe there is a toy or a game they really want. Have them save up and buy it with their own money. These short-term savings though should be fairly short-term. The amount should be something they can save in a few weeks, not several months. If it takes too long to get to their savings goal then they will likely get discouraged. The goal here is for them to learn the skill of saving up for things they want to buy. You want them to experience the joy of saving up, walking into the store and making the purchase and coming home with the item that they know they worked to earn.
Children are watching
In all of this the best way we can teach our children is by setting an example for them. It does little good to tell them to save if we spend all we make and have little in savings. They learn most from watching what we do. When they see us living a responsible financial life those lessons will be much more likely to take hold.
Find the teachable moments
Bottom line is that teaching our kids isn’t about following a rigid set of rules but it’s finding the teachable moments in the day-to-day areas of life. Sometimes when our kids want something, it’s ok to just get it for them because we love them and enjoy doing things that make them smile. But sometimes taking the moment to teach them how money works is part of being a responsible parent.
What steps can you take to teach your children today?
Photo credit: kenteegarden Creative Commons