September 2019 Issue
by Mary Hunt
At the foundation of your children’s financial intelligence should be this undeniable truth: It is not the amount of money you have but what you do with it that matters.
This is true for a child managing a $5-a-week allowance or a corporate executive with a $5,000-a-week salary.
For the better part of my life, I didn’t know this truth. On the contrary, I believed that more money was the answer. I was convinced that if we would just make more money, win the lottery or receive some unexpected inheritance, all of our money problems would vanish. But the more we made, the worse our problems became. Because I didn’t know how to manage what we had, more would have never been enough. We didn’t save. We didn’t give. We didn’t plan. And we had no idea where all the money went.
Unless your children learn simple, wise money management techniques, more money will never be enough.
The simplest way to get started building financial intelligence into your kids’ minds and hearts is by putting them on an allowance and then requiring them to suffer or enjoy the consequences of their financial decisions.
Here are five good reasons to put kids on an allowance program:
1. It teaches kids about real life.
Nothing beats an allowance for a hands-on course in values. Having their own money teaches them about responsibility, consequences, saving and charity.
2. It helps distinguish needs from wants.
Do they really need that new video game or those peace sign earrings? Having their own money forces kids to think about what to spend it on. It doesn’t take long for them to realize that when it’s gone, it’s gone!
3. It puts an end to the nickel-and-diming.
You create a set budget item called “Kids’ Allowances,” and that stops that constant drip, drip, drip of money flowing from your pocket to random stuff for them.
4. It builds trustworthiness in a child.
By giving kids money to manage, you demonstrate that you trust them. And they soon learn that to keep the money coming, they need to become trustworthy.
5. It promotes self-confidence.
Managing money has a magical effect on a child’s self-esteem. Teaching kids how to give some of their allowance to charity, save some for a long-term goal and spend some now gives them the tools of self-reliance.
START YOUNG: There are no set rules for when to start an allowance program. However, I suggest waiting until kids are old enough to understand the concept of taking care of things and making choices, which is usually around age 6.
HOW MUCH? Though many families use age to determine the amount ($10 for a 10-year-old is one example), think about how much money your child needs. Turning over money that you would be spending on them anyway is a good way to start thinking about this.
HOW OFTEN? Whether it’s weekly or monthly, kids do better when you stick to a schedule. Younger kids tend to manage their money more effectively when they get it weekly, since out of sight often means out of mind. For older kids, consider a monthly schedule so they can learn about budgeting.
WORK FOR PAY? Think about your goals when it comes to the allowance-for-chores quandary. If your main goal is to teach your kids to manage money, give them a basic allowance with financial chores attached, such as paying for their own collectibles. If you also want to teach kids the value of working for pay, pay them for extra chores on a job-by-job basis.
BACK OFF: The purpose of an allowance is to teach kids to self-govern money. Encourage kids to save a given percentage and set aside a percentage for charity (they’ll learn the value of giving back). Then give them the freedom to decide how to spend the rest.
PHYSICAL BANK: Want to get your children’s allowance program off to a great start? Make sure they have some kind of physical bank, box or jar that will help them divide and manage their money. Consider the Moonjar classic moneybox. This clever savings bank is actually three banks in one to teach children to save, spend and share their allowance.
If you want to know more, I’d encourage you to read my book “Raising Financially Confident Kids.” It tells the story of what my kids learned from receiving an allowance, details our plan and is as relevant and practical today as it was when we first came up with it years ago.
Mary invites questions, comments and tips at EverydayCheapskate.com, “Ask Mary a Question. This column will answer questions of general interest, but letters cannot be answered individually. Mary Hunt is the founder of Debt-Proof Living, a personal finance member website and the author of the book Debt-Proof Living, Revell 2014. (C)