How do we teach children to handle money responsibly? I asked myself this question last month—my younger daughter wanted to purchase Valentine’s Day gifts for everyone in the family, but had already spent most of her allowance on potato chips and Pokémon cards. This put me into one of those typical parenting dilemmas that we all face: do I reward her thoughtfulness and buy presents on her behalf? Lend her money and deduct it from future allowances? Or just put my foot down and tell her no? In the past, I have “advanced” her money for situations like this, so she was expecting me to do the same thing… I needed to set a new expectation. This time, I didn’t lend her money, but worked with her to buy some inexpensive gifts from the local dollar store that would fit in her budget.
My husband and I believe that personal finance is one of life’s important skills, but it is a tricky thing to impart. It can’t be taught in schools, and “do as I say, not as I do” doesn’t work either. As a parent, I am reminded that children learn most of their life skills by observing and emulating us; I constantly second-guess myself and hope that I am setting the right example for them.
Meanwhile, here are my current thoughts on allowances and what I hope to teach my girls.
Don’t tie it to chore charts!
A few years ago, I introduced a chore chart to my girls. I used stickers as a reward at first, but as my children grew, I wanted to give them a little money of their own to manage. I (not so) brilliantly decided that since adults have to work to get paid, they should also have to “earn” their money. This worked well at first, but then my children started asking how much they would get every time I asked them to do something. They were learning the wrong lesson!
(I try to avoid reading too many parenting books because they stress me out, but in this case, I probably should have done some research. Apparently, most of them advise against tying an allowance to a job chart for young children for precisely this reason.)
I’ve now settled on giving them their allowances at the beginning of each week, together with their job charts. We make it a point to divide the money into three buckets—saving, giving, and spending—and talk about our plans for each category.
Some lessons are best learned first-hand
Although we talk about what we’re going to do with the money, I try my best to not restrict how my daughters spend it. It’s not easy when they already have hundreds of Pokémon cards and decide to buy more! Ultimately, I remind myself that running out of money—always a painful experience—is an easier lesson learned as a child than as an adult.
In fact, I want them to get into a situation where they have to ask me for a small loan. Not because I want to punish them, but because I think it will generate a “teachable moment”. They need to understand the consequences when money isn’t managed well. Better for them to learn this lesson with small dollar amounts rather than large ones, and where the lender is a parent rather than a bank or credit card company!
(My husband is looking forward to setting up brokerage accounts for the girls, once they get a little older, so they start learning how to invest with small amounts of money. But that’s another story…)
Setting a good example
As a child, I remember thinking that adults could buy anything they wanted; I didn’t understand the decisions that went into each purchase. My hope is to be more transparent with them than my parents were with me, so they understand the rationale behind my decisions, not just the outcomes.
As adults, we can fall into a pattern of thinking that we’ve earned the right to spend our money the way that we want. However, I often tell my children that “just because you can doesn’t mean you should”, and since they observe us day-in and day-out, I have to constantly remind myself to set a good example by not buying everything that I want.
To be fair, my younger daughter is still in kindergarten… only time will tell! We are all learning as we go 🙂
How do you teach your children about money and how to be responsible with it?