Nathan Lippincott, financial advisor and budgeting expert, shares advice for teaching children how to be responsible with money at a young age.
I believe the most important lessons for kids can be about money and financial responsibility. The old adage, “Money does not grow on trees,” is a significant first lesson in raising a fiscally responsible child. Today’s society is dedicated to quick results, materialistic goals, and comparative living.
Many kids believe they need anything and everything in order to be happy – and they believe that they deserve it. But if we just hand our children everything they want, when they reach adulthood, they will encounter increased difficulties because they will not have the proper mindset to earn and save for their goals. They will expect things to come easily because that is how they were raised.
They will choose credit cards, loans and payments as quick ways to receive what they want but then end up trapped and struggling to escape debt. As parents, we need to help our children avoid this all too prevalent cycle.
Work Hard for the Money
One of my most basic beliefs is that children should never be given an allowance. Giving your child an allowance it constructs a scenario where children are given money for doing absolutely nothing. This scenario never happens anywhere else in real life. Instead of an allowance, consider this educational approach: Make a chore list for your kids with payments outlined for each task (ex: 10 cents for taking out the trash; 25 cents for vacuuming; etc). This is a commission based system (NOT an allowance) and teaches children that there is value to money earned through effort.
Note: I also firmly believe that some chores should NOT be paid. Things like making beds, cleaning rooms, etc. are elements involved with being a part of a household and contributing to overall family dynamics. In addition, it also teaches children that not everything in life is paid – many things are done because of responsibility, not reward.
Don't Spend It All In One Place
The second tier of financial instruction for children should be distribution of their newly acquired funds. For this purpose, it is best to create three outlets for them – giving, saving, and spending.
Giving: Because tithing is so important for a Christian, it should be a vital part of any money related experience. Teach your children that money is for helping others and set aside a portion of their earnings for charity. This not only helps distinguish money as a tool rather than a commodity/entitlement, it raises children with notice and heart for others and their needs.
Saving: For every dollar earned, a portion of it should be saved. Help your children understand the why of this concept, or it will become mechanical and easily overlooked without enforcement. Teaching them about actions and consequences, long term thinking and planning, and an understanding of emergency funds and security will assist in helping them to understand the significance of saving.
Spending: This teaches them that there is satisfaction in earning money – and a pride in being able to purchase something based on their own efforts. Finances should not be all repression and self denial! It has to be fun, too, or there will be no motivation for anyone (let alone a child) to take an interest in doing it correctly. Allow them to purchase what they want so they can reap the benefits of their own financial “plans.”
If they want to make larger purchases that are outside their current means, don’t just bail them out – help them to find ways to earn extra income and teach them how to save for a particular purpose in addition to their standard savings account. You can also give older children an incentive, if you desire – for example, I will pay your car insurance if you save and purchase your own vehicle; or, I will buy your books for college when you save and earn scholarships to attend (if that is their route and you wish to help). This is one compromise for a parent who may feel the desire to financially help their child but also wants them to learn responsibility without discouragement.
And keep in mind, too, that part of being a teacher is your own life: the better of an example we can set in our own financial situations and decisions, the more they will assimilate and mimic in their own lives and the less they will struggle as adults themselves.