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Kids and Money: Practical Tips for Financial Responsibility

Part 2: Kids and Money: Four Steps to Responsibility

Part 3: Kids and Money: Face to Face with Reality

What’s the secret to raising kids who are careful with their cash? What can parents do to create children who grow up to be wise money managers? In my travels around the country, I meet two types of parents. When describing their college-age offspring, one type furls their eyebrows, wrings their hands and ponders, “Why does money slip through his fingers like water down the drain? We constantly have to transfer money into his checking account. What’s wrong with this kid?”

We meet another type of parent who beams with pride as they describe their college age kid, “We’re so proud! It’s amazing how he manages to stretch his cash!”

What have we learned from this second type of parent? Listed below are some powerful, yet practical, tips for giving your children the gift of financial responsibility:

When Should I Start Teaching My Kids Money Management?

What do cookies and cash have in common? First, both are pretty nice to have. Secondly, most of us can attest to the fact that both vanish quickly when self-control is lacking!

Children younger than four or five typically have difficulty truly understanding the abstract nature of money. Obviously, few young children have difficulty understanding the very concrete fact that cookies, candies, and other treats taste good.

Parents of young children can give their youngsters a head start on financial wisdom by providing an “allowance” of treats on a regular basis. One couple started by giving Toby, their three-year-old, a small stack of graham crackers on a twice weekly basis. The graham crackers came only on Saturday and Wednesday mornings… and there was always the same small number. When they were all gone, they were all gone. No amount of whining, begging, crying, or screaming could make Mom or Dad provide more.

Recreate the Great Depression in Your Home

By five or six years of age, children are ready to start receiving a small allowance of “practice money” each week.  People often ask, “How much should they get?”  There are no hard and fast guidelines… with one exception:

It’s better to err by giving them too little than by giving them too much!

Children learn to manage money best when they have to scrimp and make do like our parents and grandparents did during the Great Depression of the 1930’s.

Children learn to waste money when their allowances are too large.

When Should I Give Them a Budget?

As children get older, they need to be given gradually greater responsibility for budgeting their cash and savings, and purchasing what they want and need.

Over the years, I’ve met many parents who’ve sat down with their older children and helped them create a budget, outlining the amount of money they will likely need to buy clothing, school supplies, meals, gasoline, music lessons, etc.  After creating this simple written budget, they’ve given their children just enough money… on a weekly basis… to purchase these items.

One parent commented, “Years ago, I gave my fourteen-year-old cash to purchase her school clothes. As I predicted, she blew most of it on just one expensive outfit. Then she was outraged with me when I refused to give her more. I didn’t give in. She ended up having to wear a lot of old clothes that year. That was ten years ago. Now she comes home from college bragging and showing off all of the nice outfits she’s found in consignment and second-hand stores. Because of Love and Logic, she’s a much wiser shopper than her older sister!

What Should I Do When They Run Out?

I’ll never forget how my parents responded when I ran out of money. With genuine empathy, they would ask, “Oh no. What do you think you might do to earn more?”

Finding this a bit irritating, I’d mumble, “Don’t know.”

The rest of the conversation would move along as follows:

Mom: Would you like some ideas?

Me: Sure… what?

Mom: Some kids decide to ask the neighbors for odd jobs. How would that work?

Me: Umm?       

Dad: Other kids decide to give their parents a bid on doing some of their parent’s chores. I might consider paying you to scrub the mineral deposits off our shower. How would that work?

Me: Well…

Mom: Some kids decide just to wait until Sunday when their parents provide allowance…

Learn more about how you can give your kids the gift of financial responsibility in part two of this series!

Find more solutions to raising financially responsible kids in our audio Parents are Not ATMs.

Part 2: Kids and Money: Four Steps to Responsibility

Part 3: Kids and Money: Face to Face with Reality


Thanks for reading!

Dr. Charles Fay