Teaching Children About Money
How should children learn about
money? Schools do little (if anything) to teach about money,
so this is left to the parents. Some parents may wonder if they
are appropriate teachers when they do not know that much about money
themselves. Relax,
it is not as hard as you may think, if taken in steps. Most people
first teach children about savings and investing by using
an allowance. However,
the first few steps in teaching your children do not even involve
your children. It starts with you and your intentions and beliefs.
-
Set goals on what you want to teach -
These goals will impact how you raise and interact with your children
(via
your examples).
Remember this education will be last until they are at least
18 years old, if not a lifetime,
so think long term instead of just the immediate future. Some
sample goals are:
Teach my children the value of saving for an emergency fund and
retirement
Encourage my children to invest in themselves through a college
(or other advanced) education
Offer my children conscious choices about money, instead of
having money drive their choices
- Review what and how your parents taught you about money -
The way your parents taught (or did not teach) you about money will
naturally
influence the way you teach your children.
What good ideas did they
use?
What lessons did you have to learn on your own that you want
to teach your children?
Subconsciously, what lessons, or beliefs, did you learn?
For example, did you learn that:
The rich get richer while the poor
get poorer
You need to work hard to have money
There is never enough money to do what you really want
It is important to keep up
with the Jones
- See how guilt influences you - Money and guilt go hand in
hand with children. With many households having either two working
parents or a single parent household, you may feel guilt and sadness
that you can not be there for your children during the day. So,
the easiest way to make up for the lack of time may be to buy
them the coolest new toy. Instead of giving them quality time,
we shower our kids with gifts, vacations, or expensive trips to baseball
games
or amusement parks. However,
these lessons may be teaching our children that money can buy
happiness.
- Make choices about an allowance - It may sound simple, but
there are actually a lot of choices to make if you decide to give an
allowance.
If you have your goals set then this should make your decisions
easier. In my mind, the learning aspect of an allowance
is allowing your child to make choices and mistakes with his money
before
going off to college when he will be on his own.
Topic |
Issue |
Solution |
| When to start |
Some say that an allowance should start as early as age 3 to 5. Others
say children should better understand money before they start
around ages 6 to 7. Other families never
give an allowance. |
An allowance is more about giving your children time to
learn about money before they are on their own. Wait until your children
have an interest in learning or when they are interested in spending
your
money. |
| How much to give |
Some say to start at a weekly allowance of the child's age (or
1/2 that amount). It is also very dependent on the parent's
income and what the child is expected to pay for. In addition,
if your child has a job, he is less dependent on an allowance. |
Do what you feel is right, not necessarily what the neighbors are
doing. You don't want to get trapped into "keeping up with
the Jones." The
best process is to set an allowance with your child based on a mutually
agreed
upon budget of what your child is expected to pay for. |
| Money for grades or chores |
Most experts advise against this because being raised in a family
should be about helping each other out. However,
a majority of parents (74% per Youth and Money Survey) tie
allowance
to
chores and/or grades. |
I believe doing
a good job (getting good grades and helping with chores as a family
team) should be done without expectation of instant rewards. An
allowance is about teaching money skills not as a reward system. Also
think about the time your child is a teen, when rewards will get
a lot more expensive. |
| Should we force savings and charity |
Two key elements of prosperity is learning to save and give freely. 21%
of parents force their children to give to charities or church while
56% require their children to save (per Youth and Money Survey). |
The goal of allowance is to give children choices. Yet, the
learning process needs to be controlled. So you can give your
child choices such as which charity
they want to tithe
to or how much to give and how much to save (5%, 10%, 20%). In
addition, you can give them a target saving or tithing amount that
they can
change for valid reasons.
Your child may surprise you and save or tithe more when they think
about where their money is going. |
| Decisions on spending |
How much control should your child have? Can they blow their
whole allowance on music and video games? |
The older your child gets the more choices they should have (to
ease the transition to adulthood). Yet,
it is o.k. to give selective choices to younger children and to
provide teens with target amounts to spend on clothing
and school supplies. |
| Bailing children out of mistakes |
A parent's natural instinct is to protect our children from the
day they are born. This protection is at first
for safety reasons. Later, it can evolve into protecting them
from mistakes that we have made. |
Unless there is severe physical, mental, or financial harm, I
would let the child make the mistake and learn from its consequences. You
may offer choices and explain the impact of the choice they are about
to make, yet delaying the learning can make the mistake even more
painful later in
life. In addition, even if you are right, teens are not known
for listening to parents (especially when force is used). They
will listen
more
when they learn the wisdom of your experience from making their own
mistakes and learning that your words of wisdom were actually
right. |
- Discuss your finances with your children - We all can learn
by examples. By explaining how you handle your money, you children
will learn from your examples and mistakes. I remember conversations
around our dinner table while growing up about investing in the stock
market. So, when I graduated out of college, I made sure I invested
my 401(k) at work in the stock market.
- Addition by subtraction - It is sometimes what you do not
give to your children that can be a valuable lesson. By the time
your children are in high school, you have probably increased your
standard of living substantially from the time that you left your parents
home. So, you may be sharing your wealth with your kids by buying
them a car, iPod, or other cool toys. The
question is when your children start off on their own, will they be
able maintain this lifestyle? Most
can not but try to anyway, and get into credit card debt and avoid
savings for a house and retirement
because they are trying to live a lifestyle they became accustomed
to but can not afford on their own. So, even if you can afford
to spoil your children, your children may be better off living more
modestly in high school to ease the transition when they leave home
to their first entry level position.
Most of your child's learning will be based on what he experiences. It
is not about teaching the fundamentals of investing that is important,
but rather what he learns about dealing with money through an allowance
and life experience. So share your life experiences
with money because it is just as valuable as your child learning it on
his
own. However, be cautious on how your share your experiences with
your children. If it is in a way of complaining about how tight
money is while not discussion solutions, your child may fall
into a trap of believing money is a struggle and it is impossible to
get ahead
in
this world. So, discuss the options and solutions so that they
can see how they can overcome their problems when they occur later in
life.
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