At what age can you start teaching your kids about money and choices? I suggest somewhere around age six or seven. This is when they start comparing what they have to what their friends have. At this stage, the habit of asking for everything to “keep up with the Joneses” sets in.
Have your kids make a list of their goals: getting a new soccer ball, taking rock climbing lessons, or traveling to Mexico. Then have them prioritize which of these are most important, and help them develop a savings plan to achieve some of their goals. You can decide which goals you want to contribute to.
If you involve your kids in financial decisions, you might even be surprised at what they come up with. A friend’s daughter thought of starting a silver polishing business. Around the holidays she distributes fliers in the neighborhood and always has plenty of customers.
In junior high or high school, let them in on how the family finances work. Let them sit with you while you pay the monthly bills. Let them observe you writing the checks. Or let them write the checks and record them in the register. You can show them how much will go for groceries, etc. and how much is left at the end of the month. This is not intended as a guilt trip, but as an education. It allows them to feel that they are included in the overall picture. And they will have a better understanding of why you sometimes have to say no. As a result of this involvement, they will develop an understanding of good money management that will be invaluable to them later in life.
You certainly don’t need to talk to them about 7% mortgage rates and retirement plans. But you can include them in discussions about the financial ramifications of some of the decisions you make. Kids are able to understand and handle a lot more than we give them credit for.
Saying no does not mean you love your children any less, that you are depriving them, or that you have failed somehow. It means that you are establishing clear boundaries.
While on the subject of kids and finances, let’s talk about allowances. You can use allowances as a way to help your children become more conscious about money and allow them to discover the power of saving.
I suggest the following as a method of helping them allocate their allowance: Tell them that 10% of their allowance has to be given to someone in need. This is the “tithe” allocation. My younger daughter Annie told me her decision, “I want to send money to an orphanage in China.”
Thirty percent of their allowance can be spent on anything they want right now. This is the “immediate gratification” allocation. If they want to spend this 30% portion on movies or candy or whatever, that’s their choice.
They need to save 30% for things that cost more. This is the “delayed gratification” portion. They may want a camera, a cell phone, an archery set, or in-line skates. They have to save until they can buy them.
The last 30% is for long-term goals, like college, or a trip to South America when they are sixteen.
Each portion of the allowance has its own purpose. Each portion has a lesson that the child can learn from it. Incidentally, the above method of allocation is a valid practice for adults, as well.
For younger kids, give them jars for each portion of their allowance. You won’t believe how focused they will become, how fascinated and proud they will be, seeing the longer-term jars fill up. Visitors to your home will be escorted to the kids’ rooms to see their jars of money.
In later years, you can set up a savings account instead of jars for the kids’ longer-term goals, and they will learn about the power of compounding interest.
I started Lydia, my oldest daughter, on a 25-cent allowance. When her Long-term jar got full, we set up her savings account at the bank. When her first statement arrived, showing she had earned 21 cents interest, her eyes lit up.
“How did that happen?” she wanted to know.
“Isn’t it amazing?” I asked. “All this time while you have been sleeping and eating and playing, your money has been just sitting there growing. And they gave you almost a whole quarter for it.”
She couldn’t believe it. Now every month, she can’t wait until the bank statement comes. She wants to see how much she earned while she was sleeping, eating, and playing.
We all want to be good parents. One way to be good parents is to say no to our children when it’s appropriate. We don’t have to give in to pressure. We have children who are inundated by marketing, selling, and promotion of products. We live in an era where brand name logos are the “in” things to wear. This influence comes right into our living rooms.
Resist this influence. Saying “no” to it will set your children on a responsible course for the future, and it will make an extraordinary difference to your pocketbook.