Teaching Children to Manage Money

Most people would agree that children need to learn how to manage money before they are out on their own. But how to do it? Give an allowance? How much? Connect it to doing chores or not? Many people find it uncomfortable to discuss money with their kids and aren’t sure what to say or how much information to share.

Some basic things to keep in mind…

  • Let them learn and make mistakes at home…before they are independent.
  • Start young. It doesn’t have to be a lot of money to start the learning process.

Model the best behavior you can, but be honest about struggles and hard decisions. Kids don’t need to know all the gory details, but they need to learn that financial choices can be hard, and as Mick Jagger sang. “You can’t always get what you want, but you get what you need.”

Here‘s a tried and true method for giving children some money to manage. I learned this from my sister, and did it with my son.
Starting at age 5, give the child $5 per week of their own money. Our rule was each week: $1 to church/charity, $1 to savings and $3 to spend.

Once that begins, parents only buy needs, not wants, unless it’s Christmas or birthday. The child is “the decider” when it comes to their money. (Remember it’s about letting them make mistakes and learn.) Guidance can be offered, but the final choice is up to the child. Parents might need to bite their tongues! If they want a game or toy, and they don’t have enough money, then get an envelope and start saving!

Each year on their birthday, they get another dollar per week. Remember to distribute between saving, church or charity and spending.

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If they want a big ticket item, it may take some time to save up, but that’s okay! My son wanted a GameCube when he was five. It took him a few years to save up for it, and by then he was old enough. He bought all his own game devices and games. If he sold them, he got to keep the money. I am now the proud owner of a Playstation, because he wanted to sell it and I wanted him to keep it. (YOU can buy it from me, Mom!)

Once he was old enough to work, no more allowance, he had to get a job. If he wants expensive clothes or shoes, I pay what the normal things cost and he pays the difference. If he wants a t-shirt, but doesn’t NEED it, he pays. Now at 17, he pays his own car payment (building credit!), his part of the car insurance, and half of his phone, (which he bought himself) along with gas and incidental expenses. We negotiate other things like eating out and extra clothes. (Do you really need a different hoodie for every day of the week?)

He’s already learned a lot of the lessons that he will need when he goes out on his own. He saved up the money for his latest phone in the same tattered envelope that he used to save up for his GameCube all those years ago. One of these days, he’s gonna need a new envelope.

Written by Sylvia Selgestad

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