As I'm weeks away from welcoming our little baby girl into our home, I am thinking about all the things my husband and I will have to teach her: sharing is caring, if you don't have anything nice to say, don't say anything at all, treat others the way you'd like to be treated, subject-verb agreement...the list goes on and on. But one thing I don't think enough parents tend to tackle is the subject of money. Studies show that parents have a hard time talking with their kids about the big three: sex, drugs and rock and roll...er, money. But it's hurting our kids - by the time children start to manage their own finances, they have an average of $2100 of debt on 4 different credit cards! Schools can't be guaranteed to teach financial literacy - most states do not have mandatory financial literacy units. I know we're still a few years out from talking to Baby Claire about money, but this is where my husband and I are thinking about starting.
Allowance does not equal an entitlement. I do believe that kids have to have their own money in order to understand how to manage it. That said, I don't think kids should get $10 a week just for being them or doing their basic household responsibilities, like keeping their room clean or making their bed. No one pays me to clean the house! It's just what I have to do as a member of the family. When kids want to take on projects that fall outside their realm of responsibility, then they should be paid according to their age and the level of difficulty of the chore. It shows they have to earn money, they can't just sit and wait for it to fall into their lap.
The importance of being earnest. Money is very complex, and should be taken very seriously. Yes, you can have fun with your money and you should! But money is for more than just having fun. It's survival, both short and long term. It's saving for a goal. It's giving to something or someone who needs it more than you. I love the piggy bank below because it accounts for all the various ways kids should view money (in my opinion anyway). Of course, kids should be able to spend money just like adults. They can get that toy they've always wanted, or they can buy something impulsively, never play with it again, and it becomes a teachable moment. But kids should also understand the importance of philanthropy and giving back to others. I want my kids to feel like they can make a difference - whether that's at their school, in their community or in the world. Philanthropy and charitable giving is a great way to make kids feel like they did something good for someone else. Obviously saving is a great value to instill in children - they might be saving for a big purchase or event, but teaching them to save when they're young will help them be better savers when they're older. And I love that there's an "invest" slot in the piggy bank. When you're ready to talk to your kids about how to invest and what the stock market is, that is a great tool to help facilitate that lesson. For allowance and cash gifts kids receive, I like the 40-30-20-10 rule: 40% long term savings, 30% big ticket purchases savings, 20% immediate spending and 10% charitable giving.
Image from Money Savvy Generation
Everything costs money. Or as my husband likes to say "There's no such thing as a free lunch." I don't think kids should be sheltered from the costs of things. Obviously, there are more appropriate ages to bring up the costs of a mortgage versus the cost of a pack of gum, but kids should know that everything has a price. I think showing monthly bills
or grocery store receipts can go a long way in kids understanding how money works to keep a house going. In order to get things that we need and want, we have to work and pitch in to earn money. At least until the money tree we planted last year starts to grow...
Practice what you preach. While we all want to raise financially savvy children, it's hard to do that when you have mass amounts of credit card debt, live in a house you can't afford, and spend money like it's going out of style. You are your kids' best teachers, but actions speak louder than words. Getting conflicting messages about money will no doubt confuse kids, so make sure to be a good role model yourself.
Are you a parent already teaching your children about money? What do you do that has worked? Did your parents give you any words of wisdom you take with you to this day? What are you planning on doing with your children?