Children and Money Management
As parents, we must balance giving children what they want while providing the knowledge they need to be financially responsible adults. Often the experiences that teach us are the ones that test our resolve, resourcefulness and ingenuity.
Your young adult’s future financial success can be enhanced by allowing them to experience real-time decision making, prioritizing and sacrifice as youth with their own earned money.
When should money lessons start?
Teaching your child about money starts when they can recognize coins and bills. Teach them the denominations of each and talk about the features on money, such as how the size of a coin is not related to its value (dimes smaller than nickels). As your child gets older introduce financial concepts like how money is earned in exchange for work and that when you borrow money it isn’t "free”. The concepts should get more complex as your child matures.
The purpose of allowance:
Allowances are a wonderful way to teach your child hands-on money management skills through their own experiences. Children who learn that money must be earned and spent wisely make significantly fewer "big-ticket” mistakes as adults. Experiencing financial set-backs and unwise spending decisions now will help your child develop the skills necessary to avoid expensive and credit destroying mistakes later.
Allowance versus chores:
Allowance is earned when your child completes chores around the house. It is different from their "household family chores” which are every family member’s responsibility. Be clear about which activities count for allowance or chores and allow your little worker to earn money
Special advice for parents:
Help you children consider options before they make purchases, but do not control how they spend their allowance. Natural consequences will quickly help children learn how to make better spending decisions over time, so try not to "rescue” your child out of sticky situations. In the case of borrowed money, still have allowance change hands at the regularly scheduled time and then have your child pay you back. Consider charging interest on borrowed money even if it is only pennies so that children learn that borrowing money incurs fees. When children misbehave, take away their privileges; only withhold allowance when the jobs haven’t been done.