Kids & Money: Have You Had the Talk Yet?
Teach kids basic money management and start early!
by Karen Blass
Question: I’ve been noticing that my kids often run out of the money I give them each week for an allowance, and then end up borrowing from me when they really want something. What do kids need to know about money and how young can you start teaching them?
Answer: Most children today grow into adulthood without any formal or informal training in money management. The majority of young adults have reported they had no training in basic money management, either from parents or in school. At the same time the wants of children and teens are exhaustive, fueled by media and advertising and their peer group. Many parents want their children to have the things other children do, and are sometimes influenced by statements such as “but everyone else has a cell phone” or “everyone else has an ipod.” This escalation in the wants of young consumers has negatively impacted the budgets of many families. And has often led to unmanageable debt when they grow into adulthood.
Giving your children an allowance is an excellent way to train them in one of the essential lessons in money management – live within your means. However, part of that training should involve consequences when they run out of money. You could require a fee or interest on the “loan” they are requesting, or suggest they go without the item or activity. Providing training and practice in managing increasing amounts of money is the primary benefit of giving kids an allowance.
If they have trouble living within their means, talk with them about the importance of planning their spending. How do they want to spend their allowance each week, what are some goals they have for savings? Encourage them to write this down and keep track of where their money went. At the end of the week, ask if they are satisfied with the choices they made, and if they want to make changes to the plan they created. Helping kids to plan ahead and set goals for their money results in conscious or mindful spending, which is an invaluable life lesson.
Savings is another essential lesson in money management, and kids need ongoing encouragement and success in regularly saving a portion of their allowance or birthday money or earnings. If you give your child a regular allowance, ask them to save a portion of it. Twenty or thirty percent is recommended. Some parents provide a savings incentive, matching fifty cents on the dollar for example. And parents will then identify the conditions for the use of these funds (trip, college, special event). This is all about creating a savings habit versus “a spending habit.” Provide them with the experience of saving for a particular item they want, especially if you feel it’s not in your budget. Help them identify ways to earn money towards this goal or figure out how long it will take if they save their allowance. This experience can show them the value of savings, how savings can allow them to buy things they couldn’t with the weekly allowance alone.
Start talking about money and building awareness when your child is in preschool, and especially when they begin to actively ask for items they see on TV or out shopping. Then keep the conversation going. Use those real life opportunities, those teaching moments, to chat about money realities such as a money values, goals, budgets, needs and wants, good shopping skills, influence of advertising and the downside of borrowing.
Money management skills are one of the best gifts we can give our children before they make their way into the world. If you haven’t started, it’s never too late.
Karyn M. Blass is an Extension Educator in Family and Consumers Resources with UNH Cooperative Extension in Rockingham County. For more information and tools to help children and teens manage money successfully, contact karyn.blass@unh.edu or call 679-5616.