One of the many challenging questions for parents is how to teach kids about money. Right now, with so many news stories shouting that “the financial sky is falling,” it’s even more of a challenge. How can we teach kids to be careful about money without scaring them to death? How do we help them learn the value of thrift without instilling money scripts that will turn them into fearful misers?
Trust me, if I had the definitive answer to this question, I would write another book and it would become an overnight best seller. In the meantime, here are a few suggestions that might help you come up with your own answers.
1. Use an allowance as a starting point. As a kid, I didn’t get an allowance and had to work for all my spending money. While there are some good points to that, I believe it also provided some of the foundation for a few of my money scripts, like “You’ve got to work hard for money.” However, children who get everything they need through generous allowances could develop beliefs that they don’t need to work because the money will always be there.
My wife and I have tried to balance these extremes with our kids. They start getting an allowance at age five. This gradually increases until age 10, when the amount is frozen. This slowly motivates them to understand they need to work if they want to earn more. We offer them optional chores they can do for pay if they want to earn extra money.
As kids become teenagers and their needs and wants increase, they also become old enough for part-time jobs and can gradually become responsible for more and more of their own expenses. My kids haven’t reached this age yet; in a few years I’ll let you know how well this works.
2. Don’t use allowances as a punishment tool. We rarely punish the kids by taking away an allowance. In my view, this would be appropriate for a money-related offense, such as stealing money from a parent’s wallet or deliberately breaking something that needs repaired or replaced. For non-money lapses, it seems more appropriate to apply non-money consequences.
3. Let the kids spend their money however they wish—at least on anything that’s legal. This was hard for me. It was tough in the early days watching them blow every weekly allowance and end up with nothing to show for it. Slowly, though, they are learning the benefits of saving over instant gratification. They both have turned into savers.
4. Establish clear expectations. Who pays for birthday gifts when they go to friends’ parties? Do teenagers with part-time jobs need to buy their own clothes, pay for car insurance, or save a percentage for college? Discuss these questions with the kids and come to a clear agreement about who pays for what.
5. When it’s gone, it’s gone. I think one reason my kids have begun to learn to save is that we are consistent about not giving them extra money. If they blow their entire allowance the day after they get it, they’re broke for the rest of the week. We don’t slip them an extra five bucks “just this once.” Saying no to kids’ pleas isn’t easy, but it is one of the most important money lessons we can teach them.
As parents, it’s important to remember that kids learn more from what we do than what we say. The best thing we can do to teach our kids to manage money well is to learn to manage it wisely ourselves.