During these tough economic times, one of the most important lessons for kids to learn can be taught at home: money management.
Just like reading, writing and math, some parents consider financial literacy a crucial life skill. Learning how to save money and use it wisely not only teaches discipline and responsibility to young people; it also helps them save for college and other expenses while showing them the benefits of delayed gratification.
For some families, teaching children how to manage money also engenders a sense of gratitude for the things they have. Kids who have to save and spend some of their own money on the things they want often end up becoming savvy consumers, according to some parents. They also tend to take pride and better care of the things they own since they’re much more aware of their monetary value.
“It teaches them responsibility,” said Hannah Davis, a Spokane mother of three. “They’re much more aware of prices, find good deals and are less likely to waste. They also don’t assume that mom will pay for everything.”
Most importantly, having an allowance and learning about money has helped her children discern the difference between want and need.
Teaching kids about money was a recent topic of discussion on The Spokesman-Review’s Parents’ Council blog. While everyone agreed on the importance of financial literacy, parents came up with different ways to impart this knowledge to their children.
For instance, some thought it was a good idea to give kids an allowance. Others, however, did not.
“I consider that a sort of baby welfare system,” wrote Trish, who raised four children, now all adults. “I believe that by giving them an allowance, we teach our children that they deserve money simply because they exist.”
Instead of simply doling out cash, Trish wrote that her children were able to earn some money by doing a list of jobs at home in addition to the chores that they weren’t paid for.
“They learned that a person has to earn their own way and as a result, they have a very strong work ethic,” Trish wrote.
Laurie Rogers, a regular contributor to the blog, uses an allowance to teach personal finance to her daughter.
“As someone who has worked in finance, I know that most children grow up knowing next to nothing about how to manage money,” she wrote. “The consequences can be dire.”
Rogers’ daughter saves two-thirds of her allowance. Although she doesn’t get paid for chores, she might receive additional funds for doing extra tasks that she wouldn’t normally do. As a result, Rogers’ daughter thinks carefully about her expenses.
“These skills are forming the basis of intelligent money management,” Rogers wrote.
Davis started giving her older children an allowance when they were in the first and second grades and plans to continue the practice until the kids are old enough to get a job. Her eldest daughter, a freshman at Northwest Christian School, receives $10 a week, while her 7-year-old gets $5. (Her youngest is only 3.)
Every week, the girls divide their money and place them in three envelopes: 10 percent toward tithes or charity; 30 percent for savings; and the rest could be spent on “fun” – clothes, nail polish and other splurges. Every month or so, when the girls deposit their savings into their back accounts, Davis matches the amount – just like a company’s 401(k) plan. Her daughters hope to use their savings toward college tuition and perhaps a car someday.
In addition to doing volunteer work at her church and various community organizations, her eldest daughter takes the money in the “tithe” envelope every few months, adds a little extra from her babysitting earnings, and makes a donation to Cup of Cool Water, Hospice of Spokane and other local non-profits.
“Although we are the wealthiest generation the world has ever known, we all often feel we never have enough. Giving money away to a cause or individual that is genuinely in need has helped us all keep that sense of constant consumerism in check,” wrote Nancy Janzen, another local mom who asks her children to use a portion of their allowance on charity. “We do volunteer our time as well but I think it is important for charity to extend to your monetary assets.”
Davis also insists that her daughters spend part of their “fun” money on gifts for birthday parties. They get to choose the gift but they also pay for half the cost. “I wanted her to just be more aware of the prices of things,” Davis said. “Knowing she has to pay for half makes her more aware of what we’re spending. She can still get something nice but she won’t pick the most expensive gift.”
Davis and other parents also don’t tie allowances to chores or grades.
Chores “are part of the responsibility one has as a member of a family. Everyone chips in; everyone benefits,” wrote Rogers. “Regular chores are non-paid work. The reward is the satisfaction one gains from seeing a job well done, from helping the family and from doing one’s part.
“Schoolwork is important, helpful, necessary, fun sometimes, interesting, nonnegotiable and definitely non-paid work. The reward is to become more learned, to build for a future, to become self-motivating and curious, to learn for the joy of learning, and to sometimes know things her parents don’t know. The addition of money to that equation would result in a lesson we don’t want to teach.”
Besides giving their kids an allowance, parents have found other ways to teach money management – from piggy banks at a young age to writing down their expenses and even using spreadsheets and other tools by the time they reach middle and high schools.
Many talk to their children about the need to set goals, get a job, work hard and save for a rainy day.
When her kids were in high school, Sherry Fischer helped them open a checking account with a debit/ATM card. “We insisted that they also have an outside source of income – not all their money was to come from us,” she wrote.
Her son, for instance, earned money as a referee for soccer games. After he got his driver’s license, he worked at the public library and played bass for church services. Fischer’s daughter also played cello at church and made extra money by babysitting, tutoring and working at her ballet school. Fischer also helped them out by paying for car insurance and repairs, plus a little extra to cover gas.
Another easy way to teach kids about personal finance is by bringing them along when grocery shopping and doing other errands. Doing this helps them see the price of food, gas and other expenses, some parents say. Davis, for instance, teaches her children a little math during trips to the store by comparison shopping and looking at the price per ounce of certain products.
Davis also stresses the difference between “want” and “need.”
“It’s so easy to get accustomed to a certain standard of living so we talk about how many others have less than we do,” she said.
For most parents, however, the best way to teach financial literacy is by setting a good example.
Fischer’s children, who are now young adults, manage their finances responsibly, she wrote. Both have IRAs and some savings in money market accounts.
“They’ve watched us work and save and live below our means: live in one house for 27 years, drive cars for 10-plus years, spend money on traveling with them and on their education,” she wrote. “Hopefully they have learned from our example to be responsible earners, savers and spenders. That’s the goal of allowances and checking accounts or whatever means you use to teach your kids to be financially responsible.
“Example always speaks most clearly to kids. We have to teach it because our society glorifies the opposite – witness the current credit crisis.”