Mom, Can I Have…
Teaching kids about money
If most of us just don't know where to start when it comes to teaching our kids about money, that's not surprising. Many of the financial vehicles we take for granted today - things like credit cards and mutual funds - didn't even exist when our parents were growing up. And since their introduction, we have been struggling to get a handle on them. It's pretty natural, then, that we resist talking to our children about them.
Since no one has explained them to us, we don't have the words to explain them to our children. So we come up with the reasons for why we don't do it: they're too young; they'll have to figure it all out soon enough; we don't want to make them grow up too fast.
Learning about money doesn't have to rob our children of their childhoods. And it doesn't have to be a test of our ability to parent. It can be as natural as talking about buying fruit in and out of season or as simple as allowing your child to pay for her own comic books.
Money is a part of life; it's a tool that helps us to acquire the things we need and want. So teaching about money - what it is, how it works, and how to manage it - should be done as part of all the other lessons we give.
To experience money, children need to first get their hands on some. Hello allowance! When is the right age to start an allowance? At about five or six. How much? Try one dollar for each year - so your nine-year-old would get nine dollars a week. Sounds like a lot?
At twelve, I got five dollars for lunch money and two dollars in mad money. Back then a Coke cost 25 cents. When you inflate that seven dollars over 25 years assuming inflation averages five percent a year, it works out to $23.70. That's how much I'd need today just to keep pace with inflation.
Once your child has some money, your next step is to help her set expectations about what she'll do with her money. Since every wealthy barber in the world will tell you to save ten percent of your gross income, start your child off on the road to financial wellness with this simple rule: Out of every dollar in allowance, she'll put ten cents towards a long-term savings program.
Then there are the weekly or monthly expenses your child has assumed responsibility for such as bus fare, lunch money and, as she gets older and more responsible, her clothing, school supplies, and extra curricular activities. Finally there must be some mad money - that's the go-out-and-blow-it-on-anything-I-want money.
You'll likely find that at twelve or so your child's need for money begins to rise dramatically. This is a good age to re-evaluate the allowance system you're using, and to introduce the concept of a spending plan. To establish how much your child actually needs, let him list all his ongoing expenses, including things like gift purchases, video rentals, and transportation.
The idea of an allowance isn't to give him scads of money above and beyond what you spend on him. Rather, you should be moving the money you would normally spend on your child into his hands so he can learn to manage it.
Once you've established the allowance routine, keep your hands out of your pocket! If your kid blows his stash, makes unwise loans, or loses his money, he needs to experience the real consequences. Let him wait until his next allowance or find a way to earn the money he needs.
The single most constructive thing we can do as parents is allow the natural consequences that teach the important lessons. It's tough to bite your lip as your little one sadly watches his friends go off on an outing he can't afford because he blew all his money on the latest fad going, but that's life.