The current financial situation has many adults concerned about the financial prospects for the near future. This often creates an urgency to make sure that their kids are acting responsibly with respect to finances.
How can parents help their children to learn financial responsibility so they will grow up to be wise money-managers? Over the years, I have met two types of parents who share dramatically different views of the financial habits of their kids. When describing their college-age offspring, one type wonders, “Why does money slip through his fingers like water down the drain? We constantly need to transfer money into his checking account. What’s wrong with this kid?”
Then there are the parents who beam 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 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. However, 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 their three-year-old a small stack of graham crackers twice a week. 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. Parents 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 must scrimp, save, and make do like our parents and grandparents did during the Great Depression of the 1930s. 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 for purchasing what they want and need.
Over the years, I’ve met many parents who sat down with their older children and helped them create a budget by 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 give their children just enough money, on a weekly basis, to purchase these items.
Regardless of whether the current financial situation will become more dire, it is important to start as early as possible with teaching kids financial responsibility. Using these strategies and starting them early, your kids can learn to be responsible for their money and use it wisely. Tips for helping teach your kids responsibility can be found in our audio, Four Steps to Responsibility.
Thanks for reading!