Find yourself digging out of a small mound of debt? Haven’t
balanced your checkbook in months? A budget—what’s that?
Just because we parents have hit a few bumps on the road to financial
security doesn’t mean our kids are condemned to repeat our
mistakes. With a little planning, we can teach our kids some money
smarts…and maybe even learn a few new tricks ourselves.
Allowance Essentials
In order to learn how to use money, kids need to have some. Allowance
remains the best teaching tool, says Jayne Pearl, author of Kids
and Money (Bloomberg Press, 1999) and financial columnist for
Oxygen.com..
At what age?
“It can be started quite young in a very modest way,”
says Pearl, citing age six or seven as a common starting point.
Before receiving an allowance, kids should…
•be able to count, add, and subtract
•be familiar with the different coins and bills
•show interest in money or spending
Should allowance be linked to chores?
No, says Pearl along with other experts. Tying allowance to chores
can lead to power struggles and take away the incentive for helping
out the family with no reward. (“Sure, I’ll help bring
in the groceries…if you give me a dollar.”) It also
reinforces discrimination since women don’t get paid for
doing chores. “Children (and fathers too) should have to
contribute to household chores just because they are part of the
family,” says Pearl. Instead of money, parents can tie chores
to other consequences: “When my son doesn’t do his chores
because he doesn’t feel like it, I might not feel like taking
him to soccer practice,” says Pearl. However, kids can be
paid for extra tasks that you might otherwise pay someone else
to do, like washing the car.
How much?
Base it on family circumstances and what you expect kids to pay
for. Make kids responsible for certain purchases, like school
lunch, bus fare, sports fees and equipment. “Give the kids
the money that you’re spending anyway and put them in charge
of it,” says Pearl. “For instance, my son would get
his hair cut every week if I let him, but it gets expensive. So
I put into his allowance, which is based on a budget of what he’s
supposed to pay for, a monthly amount for haircuts. If he wants
another haircut during the month, then he has to use his own money.
He has to make trade-offs, which is the whole point of allowance,
to teach the kids how to tell themselves No, how to make trade-offs,
and how to delay gratification instead of just saying Gimme!”
When should it be raised?
Though most parents automatically give a child a raise each year,
Pearl says this isn’t absolutely necessary. A raise should
be based on increased expenses a child has to cover. Allow your
kids to negotiate their raise and have them document their spending
to prove they need a raise. This is an important part of the learning
process.
Teach the Value of Saving
“Pay yourself first!” say financial experts. Unfortunately,
saving money is a skill that many adults haven’t mastered.
Hollis Harman, author of Money Sense for Kids! (Barron’s,
1999), says start them young. “I think the concept missing
in our culture is this default mentality of saving a portion of
everything you receive. If that could be plugged into our kids
before the age of ten, it would be like brushing your teeth—you
have to do that too.”
For young kids, Harman recommends three glass jars: one is for
spending now, one is for short-term savings, and one is for long-term
savings. “It’s the jar that becomes their bank account
that then becomes an investment account and starts to build their
future and their net worth.” Allowance, gifts and earnings
should always be divided among the three jars.
Teach kids the rewards of saving by giving them meaningful short-term
goals, says Jayne Pearl. Five- or six-year-olds might save for
a five-dollar toy that they can get in just two or three weeks,
while ten-year-olds might save for a fifty-dollar item over several
months. “Kids feel the power of delayed gratification,”
says Pearl, “and it teaches them that they can set goals
that are meaningful.”
Pearl uses the example of her son, who saved for a year and a
half to buy an electric guitar. “When he got it home, he
was so overwhelmed he was in tears,” she recalls. “There’s
so much pride attached to this guitar. I would have robbed him
of that experience had I just bought it for him.”
Teaching kids how to save carries rewards far beyond material
objects. It shows kids the power of setting and achieving goals.
“If you don’t believe that you are able to set goals
that are meaningful and achieve them, you’re not going to
be successful in life. You’re not even going to try,”
says Jayne Pearl. “So this is a very important element of
getting kids on a cycle of success.”
Carol Cujec is a freelance writer based near Boston, MA. She
can be reached at carolcujec@yahoo.com.
Online Resources:
Jayne Pearl’s “Kids and Money” column on Oxygen.com
http://ka-ching.oxygen.com/family/mother/
JumpStart: Financial Smarts for Students
http://www.jumpstartcoalition.org/
Kids’ Finance: Author Hollis Harman teaches kids the history
of money
http://www.kidsfinance.com/games.htm
Dr. Tightwad’s column on kids and money
http://www.kiplinger.com/managing/kids/
Sovereign Bank’s Kid’s Bank
http://www.kidsbank.com/
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