Teach Your Kids How To Manage Money

People are notorious at managing their own money. I think we’ve all read the articles on how a large percentage of Americans cannot come up with $400 to cover an emergency. The 2015 report on the “Economic Well-Being of U.S. Households” by the Federal Reserve highlights a few key findings:

• 32% of adults report that their income varies on a monthly basis, making it tougher to pay bills
• 46% owe debt due to a major medical expense
• 57% of those with a credit card have carried a balance in the past year
• 31% of non-retired respondents report that they have no retirement savings or pension at all, including 27% that were age 60 or older
• 31% report that their spending was equal to their income

Scary? Hell yes! There are many reasons why, but one stands out like a sore thumb: folks do not know how to manage their money.

If you’re hoping your children don’t end up on the wrong side of a statistic, then you should teach them practical financial skills.

The easiest way to do that, of course, is by giving them a regular allowance.

To Give or Not to Give

When parents first start thinking about it, lots of questions pop up like a flood of emotions. Should we? When? How much? Should it be tied to chores? I know I mulled over the idea and then promptly put it off for ‘later’ as I didn’t want to deal with these questions.

And then the inevitable would happen.

I’d be in a store, and the younger one would invariably pick up at least one item that we needed to “please, please, please” get and that it would be the absolutely last item he’d ever ask for. I was lucky enough that my kids never threw tantrums in a store even when we said no. However, we’d sometimes give in (I’m looking at you, wife) and the story would repeat the next time.

Popular Approaches

There are a few different approaches that most folks end up with:

1. No strings attached: Your kid gets an allowance at regular intervals, no matter what.
2. As needed: You kid comes to you for money when they need it, and you deliver
3. “Did you finish your chores”?: Yeah, you got that right. The kids get an allowance, but only after they finish their chores. There’s a ton of age-appropriate chore lists you can find online, and honestly, some of them have a 5yr old mowing the lawn so please, use what works for you.
4. A combination of chores and no strings attached: This is the one we went with. The kids get an allowance no matter what. They are also expected to do all chores assigned to them, just because they live in the house, period. There may be extra work that we ask them to do outside of their normal chores, and they can be compensated for that.
   

Why we picked that option:

We wanted to teach them two different lessons.

One, that you’ll always have chores whether you’re living with us or on your own, so better get used to them. Yes, it’s a thankless job and yes you’re the one who’s gonna have to do it.

Two, give them the money and let them stumble. Teach them the difference between needs and wants, while trying very hard not to interfere in their decision making.

How Much, and When?

Again, you’ll find lots of rules of thumb online. The most common one we found was a dollar a week per year of age. We’re a little more frugal than that, but more importantly, went by what they really ask for when they’re in the store with us. Normally, it would be a $5-10 toy or knick-knack for the younger one and a $20-25 t-shirt or similar from Justice for the elder one every couple of weeks. We wanted to give slightly less, but not too little otherwise they’d lose patience. We figured this way the kids would learn to save and get some of what they want, but also not able to have instant gratification.

As you can see, there is no right or wrong answer and you have to do what works for you.

That being said, you should start sooner than later. Kids start to distinguish between wants and needs right around the time they’re entering Kindergarten, if not before. We started a year or so later but hey, better late than never!

Why We Don’t Link Chores and Allowance

My kids are smart (biased opinion here, I know), and they’re also lazy (my kids after all). I know that this day will come –

Me: Why haven’t you done your chores?
Kid 1: Because I don’t feel like it.
Me: Then you won’t get your allowance
Kid 1: That’s fine – I have enough for now anyway, don’t need anymore. ¯\_(ツ)_/¯
Me: ఠ_ఠ
Kid 2 (to Kid 1): Hey, can I borrow 5 bucks?

Simply put, if you live in the house, you gotta do the chores…

An Allowance Isn’t Enough

Now that we’ve established that giving an allowance is the right thing to do, it is just the first step of many.

Teach them:

• That it’s not an entitlement, but that they should learn how to manage it
• To Save, no matter how badly they want that fidget spinner (jar #1)
• To Spend, as they deem fit. You don’t get to interfere. Also, no advances (jar #2)
• To Give, to those less fortunate than us (jar #3). There’s nothing like a visit to a third-world country to drive that point home.
• To Invest, as they grow older. Just saving isn’t enough – they also need to get smart about how the real world works, and how they need to grow their money to be wealthy
• To make mistakes, as there’s nothing that drives the point home faster

Above all, be honest. Talk to them about money – it shouldn’t be a taboo subject in your household. Share your financial highs and lows and they’ll understand when you can’t take them to Disney World that year.

As far as my kids go, I’m glad to report that my elder one has drastically reduced her trips to Justice for expensive (in my opinion) clothing. The younger one has a tougher time controlling his impulses (as expected) but does a pretty good job nonetheless. Now if I could only get them to turn the lights off in their bedrooms when they leave…