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With little to no provisions within the educational system to give your kids a financial leg up in life, it's up to you to educate your children about money.
In Part One of this series, I provided an age-based timeline to ease your kids into money comprehension and management.
This article will deepen the timeline by giving you some additional tips to ensure your kids have a healthy relationship with money, right from the start.
Allowances are Paychecks: Be an Employer
Generally speaking, an allowance is a system of regular payments to your child, often as part of a deal that involves performing certain household chores.
Your kid is on the payroll-- an active employee of the household. Seeing that you are a pseudo employer, try to act like an employer.
Make sure the timing of allowance payments is exact and consistent, so as to help your children manage expectations and income streams later on.
It's easy to entice your kids into good behavior by offering money as a reward; however, this teaches them that money is an end - the ultimate reward - as opposed to a means to an end.
Instead of offering cold hard cash as an incentive to behave, try rewarding them with experiences (or even goods) that money can buy.
Taking them out to a movie or lunch not only has more tangible life-enhancing value, but it's equally - if not more - effective than just giving them money.
Even better, non-financial rewards like a trip to the park or a sleepover with friends are great perks they'll enjoy that are also easy on your wallet.
Teach the "Pay Yourself First" Rule with Allowances and Gifts
Somewhere along the line, most of us learned the "pay yourself first" concept-- an effective way to save money, budget, and create financial discipline. And most of us probably wished we had embraced it a little sooner in life!
So help your kids learn it by discussing short-term and long-term savings plans, and budgeting for items they might like to buy but can't afford.
Suggest they put 10% of their allowance into a bank account or piggy bank. To help them stay focused initially, suggest they save for something specific (and achievable) with their savings plan. Once they've effectively paid themselves first and reaped the benefits, they might even start to put away larger percentages of their "income."
Foster their Interest
If your kids are curious about money - even if it's something as idle as wanting to play with the coins in your pocket or purse - foster that interest. Help them count the coins, and discuss their value and what they can buy.
Money will work its way into your children's lives in various ways. When it does, take the opportunity to spearhead a conversation about it - whether it's a serious sit-down or a casual chat.
Money is not evil! What it does to people who aren't responsible or ethical with it is where things go awry. So don't let your kids inherit a cynical attitude towards money.
Be careful not to inject your own stress or anxiety into conversations about money, as it's contagious. Instead, focus on the positive things that money (and responsible management of it) can do, such as traveling, helping a loved one out, enjoying a good time with friends, or even starting a business.
Avoid the idea that money is happiness in and of itself by showing how it can be a conduit to positive things.
Why is it that talking about money is considered taboo? Although it's good to let your kids know what financial matters are (and aren't) acceptable to discuss in society at large, don't let those societal standards be the precedent in your home as well.
If your child asks why they can't have or do something they want, use it as an opportunity to discuss the household budget or cost of living instead of using the "because I said so" argument.
Go as far as your own comfort zone will allow you in discussing money- even as far as letting them in on the management of your own finances.
By involving your children in the family finances, they will learn how to responsibly take ownership of their own money matters right from the start, which is one of the best gifts and life skills you could give them.
Educating Your Children About Money - Part 1
Setting Financial Goals You Will Achieve
Family Time and Weekend Activities on a Budget
Nora Dunn is The Professional Hobo: a full-time traveler and freelance writer. She is a contributing writer under Life Balance. Having sold her business and belongings to travel, she has been on the road since 2007. She travels in a financially sustainable manner, taking advantage of creative volunteering positions while constantly balancing life and her location independent work on the road. As a former certified Financial Planner, she is financially responsible for her actions along the way. She believes there is a fine balance between planning for tomorrow, and living for today. Compensated CareOne Blogger. You can also follow Nora on Twitter @hobonora
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I think this is great. As a child I was not taught how to manage money and as a result I managed to get myself into about $45,000 worth of debt. Luckily I have found resources that have helped me understand what I was doing wrong and aided in getting me on a plan to eventually live debt free. Once I become a father I will be employing many of the practices that you have mentioned here. Thanks for the post.
@Chris - Excellent! I'm glad you find this post useful. And since you're planning responsibly for your parenthood, the next step is to make sure you can afford to have a baby! (Here's what I mean: www.wisebread.com/can-you-afford-to-have-a-baby)
I'm so glad I stumbled upon this. I wrote a post similar to this, but did not go as in depth as you did. I got a bit of push back from people saying the kid should spend their allowance as they see fit. Not without an education first, I say! www.goodenoughmother.com/.../ask-rene-allowance-argument
@rene - I like the idea that kids can spend their allowances as they choose (for better or worse sometimes)...but like you say - without an education first, they don't even have a chance to make an educated decision!
Right now my son doesn't care about money. He likes to play with coins and he says dollar bills are "fake money" xD It's pretty awesome. I fear the day he finds out that Paper Money is not fake and spends it like the world is gonna end in an hour. LOL
@Jenny - LOL! Now it's up to you to ensure he understands the value of those "fake" paper bills before he develops a penchant for spending them! :-) No small task, I know. In the meantime, just encourage him playing with the coins. It can be a great way to teach math when he's old enough too.
I really wish my parents would have taught me more about how to save and the importance of credit.
@Jennifer - You're not alone! It's also a shame that schools aren't more proactive in their curriculum about finance. Between our parents and our teachers, we could really get a leg up in life if we have the right foundation for money.
Now, too many children spend their summers parked in front of a TV, computer, or video-game screen, eating a bad diet and seldom leaving the couch. And if you're "lucky," they'll also complain about being bored !
I disagree with this page. I believe that humans need to educate their children on how to live in a world without money. Money has been a part of human life for a long time. It is time for sharing and community. We are evolving very fast. Money will slow us down. Money will never allow people to prosper. It is a part of an obsolete age of humanity. It is time for true equality, surplus, and cooperation. Money always leads to competition. The time for competition is over. It is time for Cooperation. Synergy. Co-creation. Surplus. Abundance. Love. Peace. Community. Sharing. Compassion. Understanding. Imagination. Spontaneity. Freedom!
@Anthony - Although I don't necessarily disagree with you, to bury our heads in the sand and NOT teach our children about how to live practically in the world we're working with right now (which is still driven by money - it's not obsolete yet) doesn't help them in life. Teaching them about both....and about Life Balance, is the name of the game.
Great article that makes some very good points! I wrote a few pieces on the financial education of very young children (preschoolers). Thought you might find them interesting:
This website has good ideas for teaching children about money and how to handle it.
This was very informative and easy to follow. We have been discussing what to do with allowances and weather to do it or not to offer one.
I am no expert, but my experiences with debt have left quite the impression on me so I have a pretty strong opinion on doing what we can to better prepare our children for the responsibility of managing personal finances.