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Helping your child become
a responsible money manager…
By Martha Wegner
Money is burning a hole in my son’s pocket. Yes, he just
received his weekly allowance, and as soon as that cash hits
his palm he is begging to go down to the neighborhood
drugstore to buy something. The things he purchases make me
cringe: one more set of baseball cards, to add to his
already mammoth collection of cards. Or perhaps another cap
gun, soon to be stashed in the toy basket along with the
other cap guns, airplanes, and yo-yo’s from weeks past. I
feel angry and resentful putting money into his hands. On my
worst days I say to him, “Why don’t you just take this money
and flush it down the toilet?” He looks at me with
bewilderment. After all, this is his money, right? And he
has every right to spend it the way he sees fit, right? And
the way he sees fit is to spend it NOW. Why save it when the
pleasure of spending is right there in his little hand?
Then there is my daughter. I wouldn’t be surprised if one
day while making her bed I find a large wad of cash stuck in
between the mattresses. To her, money is something to be
saved, not spent. She proudly says to her brother, “I’ve
saved up $85. How about you? How much have YOU saved?” Her
brother looks at her with a blank stare – what could
possibly be the reason for saving when there are so many
wonderful little things in the world to buy?
Something is clearly wrong here. On the one hand I’ve got a
compulsive spender in my house, one who views money as a
route to get a quick easy “fix”. On the other hand I’ve
raised a compulsive saver, one who sees money as something
to be held on to, no matter what. Neither option seems right
to me. How will my son learn to save money for a car or a
house when he grows up? How will he learn to say “no” when
he sees that next new flashy gadget in the store window? And
how will my daughter learn that money is meant to be spent,
that in fact there is pleasure in spending? I imagine her
being wracked with guilt as she grows up, knowing she just
plunked down $100 for a suit she needs for a job interview.
I imagine her sleepless nights as she contemplates all the
money she just spent on that pleasurable vacation.
As in all things related to child rearing, I know that there
must be a happy medium. There must be a way to teach kids
healthy attitudes about money; how and when to spend it and
how and when to save it. So I consulted the experts, the
ones who wrote the books on teaching finance to kids. It
seems that the answer begins in looking at our kids’
allowance, that weekly sum of money we give (or forget to
give) our kids each week. Here’s what the experts have to
say:
Kids should receive a regular weekly allowance –
In many ways it is much easier for parents to dole out the
money from their own wallets when their child needs (or begs
for) something. But giving kids their own allowance, thereby
requiring them to spend and save their own money, teaches
them to be responsible money managers, an invaluable
lifelong lesson. “In order to be transformed into
responsible spenders… children need to be given
opportunities to spend. They need to have chances to make
wise and foolish decisions, and they need to be given those
chances fairly often…”, so says David Owen, author of The
First National Bank of Dad: the Best Way to Teach Kids About
Money, (Simon & Schuster, 2003).
How much?-
O.K., so we need to give our children an allowance, the
obvious question is, how much? This can be a complicated
decision, and every family has a different formula.
Certainly the decision should be made based on the
prosperity of the parents, the age and maturity of the
child, and the financial responsibilities of the child. One
author suggests paying a dollar amount equal to the age of
the child. Another suggests giving half that amount. Janet
Bodnar, author of Dollars & Sense for Kids: What They Need
to Know About Money – and How to Tell Them, (Kiplinger
Books, 1999), tells us that we need to decide ahead of time
what expenses the child’s allowance will cover. A clear
delineation must be made regarding what will mom and dad pay
for, and what the child is responsible for. Having this
discussion will help guide the amount of allowance your
children will receive. When considering allowances, David
Owen has this word of caution for parents: “Children who
receive harshly stingy allowances… have no reason to think
long-term. They see no point in saving, or in comparing
possible purchases, because they know that their incomes are
too meager ever to accumulate into anything significant.” In
other words, allowance should be of an amount that
encourages both short term spending and long range savings
for the “big ticket” items.
Set a consistent “pay day”-
Set up a system whereby you are sure to pay the child at the
same time on the same day. This avoids the constant, “You
never paid me last week!” whine we so often hear. Paul W.
Lermitte, author of Making Allowances: a Dollars-and-Sense
Guide to Teaching Kids about Money, (McGraw-Hill, 2002),
suggests keeping an “allowance tracker”, a written record of
the allowance you have given out to each child. Another
writer keeps track of allowance on a computer program. Still
another hands out “allowance coupons” at the time of
payment, redeemable for cash. Finally, one expert uses a
“checkbook” system in which she credits her kids’ “accounts”
with a monthly allowance. The kids write her a check as they
need cash. Do what works for you, remembering consistency is
the key.
Don’t tie allowance to work-
All the experts agree: doing chores around the house is just
a regular family obligation, and should not be tied to
allowance. “An allowance is given to a child on a regular,
consistent basis. In simple terms, a child should receive
his allowance for simply being a member of the family, in
order to instill good money-management skills,” says Paul
Lermitte. On the other hand, parents may still choose to
give extra payment for doing certain out-of-the-ordinary
jobs such as painting the fence or cleaning the garage.
Don’t pay for good grades or good deeds –
“Buying grades, or any other good behavior, distracts kids
from the sense of accomplishment that should be their real
reward,” says Janet Bodnar. Keep money and good works
separate.
Encourage children to save-
Some of the experts suggest requiring the child to set aside
a certain percentage of his/her income for savings. Others
believe that savings should be voluntary. If children
understand clearly that they are now responsible for
purchasing that latest electronic gizmo, or the trendiest
new fashion, then they will be forced to learn to save on
their own. In either case, the money saved can be stored in
a special jar or piggy bank; it is not necessary to put the
savings into a bank. Bodnar tells us, “Among younger
children, banks conjure up a place that takes your money but
doesn’t give it back, so savings is best begun at home,
where kids can keep an eye on their money and watch it
grow.” If you do decide to have your children put their
savings in a bank, let them know that this is their money,
which is accessible to them, although you might want to have
an agreed upon minimum that must stay in the bank before
they can make a withdrawal. If you don’t put their savings
in the bank, but would like to teach children about earning
interest, consider providing a small amount of interest
yourself, based on the amount of money and the length of
time the child saves it.
Thanks to these good experts, I have a new financial plan.
Each of my children will be paid consistently, fairly, and
generously, and this payment will not be based upon chores
or good grades. We’ll discuss ahead of time the things for
which they are now financially responsible. We’ll purchase a
special piggy bank for each of them so that they can start
saving for those more expensive items. My daughter will see
that all the money she has been hording can be transformed
into something she has always wanted, something that her
parents have been unwilling to buy for her. My son will see
that instead of spending the money as soon as he sees it, he
might want to hold on to it for a bigger goal. And if he
decides to throw his money away on yet another “piece of
junk”, I, his mother, can stay relaxed. It is his money,
after all. It’s all part of learning to be a responsible
money manager.
I feel better already.
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