Money and Your Children
From small allowances for young children to bank accounts and credit cards for college students, parents have many questions and various beliefs about how to try to teach their children about money. Like most parenting issues, the key to success is to have a clear sense of purpose about what you are doing and to involve your children in the decision-making.
Let’s do this chronologically. With preschool children, don’t even bother. Just pay for things as you go along. The issues are too abstract for most very young children to grasp. In fact, I wouldn’t begin to address “paying” children until at least age 8.
Let me quickly discard a couple of popular methods for giving children money. I don’t believe in paying children to do routine chores or for earning good grades. Helping around the house should be seen as a family responsibility, not a way to earn money. In fact, I usually recommend that parents do chores with their young children. It’s much less hassle and allows for some bonding.
Back to money. The word “allowance” would seem to imply that the money given to the child will allow the child to make purchases. Is it in fact “free money”? Can the child really spend it on anything? Should the child have to save some of it or give some of it to charity, two things that parents often see as part of teaching children about money? Of course, all this gets tied into the big question: How much to give?
The answers to all of the above vary according to the age of the children. In the beginning, (whether you start at 8 years old or earlier), my suggestion is that a small amount of money should be given with no strings attached just to allow children to begin to experience the sense of having their own money. Don’t give it with lectures. Just say you are giving them a couple of dollars each week that they can spend on whatever they would like (exceptions to that should be clarified, e.g., if there are foods that cannot be eaten for health reasons or toys that are not acceptable). It’s interesting to observe this unfettered opportunity and note differences among children. Most will spend the whole amount on goodies of one sort or another. Some will actually hold onto some, even all of it.
Negotiate Some Financial Responsibility at Age 10
As the children get a little older, probably about 10, this is a good time to begin to negotiate financial responsibility. Have your child create a list of nonessential expenses. I think this is too young to have children manage clothing allowances and including lunch money in allowances makes no sense to me since you have to give them that money anyway. Ask them how much they think they need or should receive. Again, parents are often surprised when children don’t ask for unreasonable amounts of money. Then, again, some have no clue. How much you actually give will be influenced by a few factors, including family finances, your own spending pattern (parents often fail to recognize how much their “objective” decision about allowances is actually based on their personal attitude about money), and awareness of what your peers are doing. On this latter point, you generally want to try to come close to the median, i.e., about the midpoint of the most frequent amounts your child’s friends are getting, not too low, not over the top.
I don’t think you should require savings or charitable contributions. Hopefully both of those issues may come up naturally. It is much better than to simply take away from what you are giving. That teaches a child nothing except that you have negotiated a financial arrangement that isn’t really honest. What I mean is that to tell your child “Here’s $5, but I’m making you put $1 in the bank and give $1 to the church” really means you are simply giving the child a $3 allowance!
With so much media attention given to tragedies, children are more conscious than ever about the misfortune that befalls many in the world around them. There are lots of wonderful stories of children contributing to fundraising causes. It is so much more meaningful for your child to offer to donate part of his allowance out of his own desire to help someone than to simply be making an automatic donation that has no real connection to the child. For those parents whose child doesn’t offer to do this spontaneously (actually even with the children who do), parents should be discussing their own charitable giving, including who you give to and why and how it makes you feel. But don’t force giving. If you model it and explain the values embedded in it, most likely your child will be charitable at some point in his life.