Hey all! Before we get started, I’d like to introduce Anna from A Serial Life. She was kind enough to provide this guest post today. Enjoy!
Teaching children about money is a tricky endeavor because it is way more than just money. Rolled up in that whole tortilla are lessons on values, responsibility, priorities, consequences, delayed gratification and work ethic.
Before you can worry about how to teach your child about money you need to be clear on what you want to teach them about money. Make sure you have a clear understanding for yourself before you try to implement anything.
Clarifying Your Own Vision
Take the time to see what your own priorities are and, if possible, collaborate with the child’s other parent.
Answer a few questions:
- What is my view of money? How important is money? Do I have all my financial priorities straight?
- What do I wish someone would have taught me about money when I was younger?
- How do I feel about allowances?
- What kind of values do I want to pass on that are attached to money? Charitable giving? Being debt free? Entitlement? Gift giving?
- What does my child need to know about money now so that when they are an adult they will feel empowered?
Those questions are just meant to get the ball rolling. There will be many more that pop into your head and you need to seek those answers.
Once you get your head on straight you can start thinking about how to impart your parental wisdom. Remember, that as you do this your child will also be watching your example. Example is more powerful than words.
Every family is a little different and each one will have differing views. Below is my account of how my husband and I taught our daughters about money. They are now 20 and 24. While we no longer actively teach them about money we are still examples and, occasionally, advisors. Please take what you can use and ignore what may not fit in your family value system.
When to Start?
We started right away. Part of our value system was that we did not want our children to equate love with money or material things so we set rules in place about gift giving. They received one modest birthday present every year. At Christmas, Santa left one large gift and a filled stocking, Mom and Dad gave books. The Easter bunny left a small basket.
We also set time limits on Easter baskets and Stockings. Age 21 is the last time they receive an Easter basket and 25 for a Christmas stocking. Doing it by their age keeps it fair for each of them (and anyone who has more than one child will know the ongoing “but it’s not fair!” lament) and keeps it from running in perpetuity.
I am happy to say that this technique has raised very grateful children who appreciate what they receive. Even if you don’t use this particular technique, remember that you are setting a precedent.
Ages 2-4 is best for setting limits. ‘No’ is a good word for them to learn. They cannot have everything they want. In a retail atmosphere, continually caving to their whim for new things to bribe them for their cooperation is just feeding a monster. It is insatiable. The younger they are taught limits the less tantrums you have to deal with when they are older. Learning limits is great prelude for delayed gratification and benefit them when they really dive into the meaning of “living within your means”.
This is also a good time to introduce savings and charity. A piggy bank is cool thing and a great receptacle for change. It gets them in the habit of saving it even before they realize what they are doing. The same goes for charity. If they are allowed to have change for the Salvation Army kettles, the Muscular Dystrophy boot, or the basket at church, they will learn that giving is connected to what they do with money.
School Age Kids
At this point your children are old enough to really talk to about finances in an age appropriate way.
They will undoubtedly ask for things that you cannot afford. This is a great time to introduce the concept of a budget. When you tell them “it is not in the budget right now” versus “we can’t afford it” it will start a conversation about what a budget is and why you follow one. It can further initiate conversation on creative ways it may be possible to get an item in the budget, circumvent the budget (gift), or even how they can get it with their own money.
How kids get their own money is an interesting topic all its own.
The use of gift money from grandparents or other relatives is one way. We allowed ours to keep half their money to spend and the other half went into their savings account. The reason behind them keeping some to spend is because they will indeed make rash purchases with that tiny bit of money and either love it or regret it later on. The natural consequences of this will help them with better decision making in the future.
Then there is the controversial subject of allowances. We opted out of allowances on the belief that they are a part of a family and the chores they are given to do is them being a part of that family (studies have shown that chores are good for children…do not be afraid of chores!). We did, however, give them opportunities to earn some pocket change if they went above and beyond their regular chores. These were all low paying jobs with a lot of hard work. A lot of scrubbing, lifting, and moving was involved.
I have seen allowance plans that do work for other families, but they usually had a correlation to where they had to pay for some of their own items, or save or give a certain percentage to charity. These can all be great teaching tools and if it works for your family then go ahead and do it.
This is also the time in your life where your kids will still think you are the wisest amazing person on the planet so it is a good time to instill frugal wisdom and habits. Habits that save on utility bills, how to shop for the best deal, why something is a rip off, what kind of value to look for in a product. It is also a time to pass on any DIY skills that you have. Life skills, in general, will help them be responsible in the future with their money (knowing how to cook or sew on a button can save thousands over a life time). It can all be taught simply by including them in the daily running of the house and the family. They learn things and the side benefit is there is a lot of serendipitous moments that will help make a lot of memories.
It’s crunch time…you need to get serious with them.
This is when they can start generating income. It may be babysitting or yard work in their younger years and progress to a ‘real’ paystub job in their later years. This is great! This is the time to teach work ethic, responsibility, savings, and budget.
We required our girls to save half of their earnings in an untouchable account until they reached the age of 18. We got push back on this. They felt this was unfair because it was their money and we shouldn’t put any restrictions on it. One daughter went so far as to tell everyone that we ‘took’ half her money (eyeroll). The tone changed dramatically when, at the age of 18, they were amazed that they had enough money to pay for a car and some college tuition!
The other half of their earnings were used to pay their bills and their entertainment. When I say bills, I am referring to the fact that when they were 16 we required them to get a part time job and they became responsible for their own car insurance and their cell phone bill (their portion of our policy and plan). This still left them with an extraordinary amount of disposable income. There are some parents that gave us grief on this but I am staying strong on this point. There are those who say it is our responsibility but I say it is a privilege and if they want it that bad they can pay for it because this is how the real world works. For the parents who say that school is their child’s job, I just want to point out that I have yet to meet a teenager who put extra work into school when they had free time. But again, it’s your family and your decision.
You will also notice that teenagers will spend stupid money on stupid stuff. I say let them, if they’ve earned it. Get it out of their system and let them learn from natural consequences.
This is a great time to hone in on budgets. We did this with a clothing budget. Every year starting at age 10, they were given a spring and fall clothing allowance. This allowance covered the cost of clothing but not undergarments, shoes, or outerwear (yes, we purchased them). From 10-14, I accompanied them on their shops and walked them through the process. At 15 they were totally in charge. [Side Note: By 15 my daughters were full grown, so outgrowing things was not an issue. You may have to adjust for your own circumstances]
The ‘totally in charge’ detail can be really scary but you have to commit and let them live with their decisions. You will inevitably see your child make a poor decision and you both have to live with it. One daughter spent 35% of her budget on one pair of sweatpants with a trendy brand name sewn across the butt. I had to watch her (with invisible duct tape over my mouth) wear them over and over again because she had only one other pair of pants to alternate it with. In the end, she hated them as much as I did and never made that mistake again.
This is also the time to teach them about balancing checking accounts, the cost of health care, how to make a budget, compounding interest, debit vs credit cards, student loans, etc. They need to have some idea before they head off to college or the real world, not after the fact. They physically should be walked through the process. Theory will only take you so far. Do it one subject at a time. They may hate a sit down or they may be fascinated. It still has to be done.
We can’t expect them to turn 18 and magically become responsible for all this stuff. It is our job to prepare them for that responsibility.
We had prepared our children well and at 18 they became responsible for their own finances. That did not mean that we walked away, it just meant that we withdrew from the oversight of their accounts. We have walked them through rental agreements, car payments, 401K enrollment, Roth IRAs, and other “adulting” financial situations. We no longer make decisions for them, we are advisors only. No micromanaging allowed!
Don’t Be Delusional
Your kids will make mistakes. They will rebel. They will think they know better. Give it some time… it is amazing how much smarter parents get the longer their children are adults. They heard you, they saw you, and eventually you will see them implement a lot of the lessons and many of your words will come out of their mouths (enjoy that moment).
Some people take longer than others to come around and your child might make a huge financial mistake. My advice is to be careful how you bail them out of these mistakes. There is a fine line between help, entitlement, and dependency. If they are making the same mistake over and over because you are fixing it too quickly, it means you are part of the problem. Sometimes you have to let them feel the pain of their failures so they can learn from them.
Cheers to You!
The fact that you are reading this and trying to decide what to do it is a good first step. There will be times that this exhausts you. Keep fighting the good fight, pointing your children in the right direction is never a bad use of your time or energy. Here’s to financially responsible children!
Anna Weisend is a freelance writer, multipotentialite, and a mom. You can learn more about her at www.aseriallife.com.