Money Smart Kids the Final Chapter
Just in case you missed them, here are the first three parts of the Money Smart Kids Series. Part 1. Money Smart Kids, Part 2. Money Smart Kids, Part 3. Money Smart Kids
For the final part I am closing with thoughts on allowance, saving and savings strategies.
Allowance feels like a dirty word to me. If you are the kid who doesn’t get an allowance you feel like your parents are the worst. If you are a kid who gets one then you don’t appreciate it, and probably feel a sense of entitlement to it. What I don’t want to do is tell you the kind of parent that you should be. You have to make your own choices about that. What I can say, is that paying an allowance will affect your child’s ability to manage money, and their expectations about where money comes from. If you choose to be a non-allowance payor you will also always face the peer pressure of parents who choose to give their children something for nothing. It’s difficult sometimes, but it really is the best way to help train your child for money success. I am not saying that your child should never get something for nothing, what I am saying is that it should be the exception rather than the rule. When you give something for nothing they should realize that is what happened, and feel gratitude because it is not normal. Do not give your children money on a regular basis without requiring that they earn it if you want them to be good with money in the future.
Let’s talk about ways that are a great way to teach your child to earn money. First, determine the things that they are required to do as a member of the household. These are the items that you don’t want to attach to money. They need to know that they have to do these things as a family contribution. Maybe the list is small, clean up after yourself, walk the dog, brush your teeth, etc. You can also determine daily/weekly chores that they can earn money for. It’s your choice if you want to pay daily or weekly. I pay weekly for completion, but they get stickers on a chart for each chore that they do each day. The payment doesn’t have to be money if your children are not yet motivated by money, it can be small toys. You may also have a teenager who would prefer time where you are playing video games with them, or going out to lunch together. These can also be in your plan. Adjust it to whatever motivates your individual child. If you have multiple children, you will probably need multiple plans, and they will have to change over time. Finally, have extra things or tasks that they can do if they need money fast. It can be a chore of yours that they would be able to do, or maybe something you never get around to (cleaning the baseboards). There are chores and tasks that you can come up with that are age appropriate no matter what age your child is.
For the money that they are regularly earning teach them to spend half and save half. When they are older/adults these ratios will change. Your main focus here is to establish a habit of saving. We’ll call it good money hygiene. While they are young, it is much easier to teach them to set aside money without feeling like it’s not fair or it’s too much. If you have older kids try starting at 25% saving, and maybe negotiate down to 10% if you need to. You’ll have to be ready to clearly explain the benefits of saving, and why it’s important not to spend all of you money. My son is 19 now, we still have regular conversations about the choices he makes around spending. We have evolved over the years, and I have backed off on trying to get him to save more. He does contribute 10% to his 401(k), and that will set him up well. I’ll take the win and let him fall back on my teachings when he is ready.
The real trick to getting your child to save is to attach a specific wish to their saving. If they are just saving to save it will feel terrible, and not be sustainable. It will feel a lot like a diet, and they will wonder if the benefit is worth the cost. For small children it can be a toy or a special treat. For older children electronics, video games, experiences, you get it. Do not have them save just for the sake of saving. It is a very rare child that will have the maturity/desire to do that. Teach them that saving gets them specific things. Teach them that if they save money they will be able to get the things that they want one day. There may be some large ticket items that you will agree to pay for half as long as they save for half. That’s totally fine. Just make sure that they are actually doing their part.
If you are struggling to save it can be difficult to teach your children to do things differently. Don’t despair, I can help you. Reach out with questions.