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Instilling good money management values in kids seems easy on the surface, but it’s a lot more complicated than it seems. So, we want to know: how do you teach your kids about money?
Photo by Brendan Riley.
The value of money is a tricky question. You don’t want to spoil a child, and you want to make sure they understand they’ll have to work to get the things they want. From chores to pocket money to their first job, how did you get your kids to take on good money management?
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I spent a lot of time thinking about this for my kids. Firstly, I have never tied their pocket money to chores. They get pocket money, no matter what. Secondly, two thirds of their pocket money goes directly into a bank account and one third goes into their pocket. Finally, if they want to earn extra money, they can do additional jobs around the house over and above the normal chores.
The rationale behind this is:
1) If you tie chores to pocket money, it means you’re undervaluing the chores. Seriously, if you could get someone to mow the lawns for – say – $10, really – you would, wouldn’t you? That’d be a bargain.
2) If you tie chores to money, and undervalue the chores, then you’re giving the kids a very cheap way to get out of doing work. Chores are compulsory and part of family duties. You can’t get out of doing them by foregoing the pocket money. Really, tying chores to work just says “you don’t have to mow the lawns, and all it will cost you is $10 that you haven’t even got yet.”
3) Putting the money directly into a bank account reflects the way the world works. When they get a job, they won’t be paid in cash.
4) The kids get a small amount of cash in their hands for spending on whatever they want.
5) The rest of the money is in a bank account, and getting it out requires going to the bank and removing it. Actually my kids don’t even have the cards. I don’t generally vet their decisions, but having to ask me first makes them think twice about what they’re doing.
5) Giving them the option of earning extra money means they get the idea that when you want something special you have to work for it.
I don’t have kids, so I’d be a fraud jumping into this debate. I think you have a great system, and really I think any parent who can justify what they do is doing the right thing (no right answers in parenting, right?).
I’m just curious about your kids ages. It seems like this would be an important part of the system, since $5 is a lot of money to a young child, but would mean nothing to a teenager.
Great approach. I’m going to use this when mine get older. Thanks for taking the time to write
The biggest challenge I’ve found teaching my kids (6yo) about money is convincing them about prioritising. They can see the value in saving for clothes, food and a roof over our head. Harder to help them to see that Dad’s retirement, daily coffee and comics.
I have 3 money boxes set up for my son one for spending one for saving and one for charity. I try to get him to put even amounts of cash into each one. Any money he gets for his birthday and christmas goes straight into saving and I take him to the bank to deposit his savings each month. I regularly deposit money into his account each month. If he wants anything I tell him he has to save for it with his spending money so he can get it.
I’ve learned valuable lessons from my parents in how not to manage my money. It seems they spent their whole lives trying to keep up with the Joneses – big house, nice cars etc. And now they’re near retirement age they’ve realised they have nothing saved up, so it falls on their kids to support them. A case study in money mismanagement.
What I find is that kids need to be taught that money set aside reaps rewards instead of spending money. I find that if I reward my kid with interest (ie, if you put in 5 dollars this month instead of spending it, I will double it at the end of the month, or add an extra few dollars etc) this will give them an idea of savings/investments for the long term, albeit a tad more rewarding.
The other thing to teach is saving for big things. When kids want something big and costly they need to save toward it. Start with small things, make them put a separate amount towards it, and ultimately savour the success of saving to buy something. Heck, you could even offer them the full amount to buy whatever they want, but give it to them in even amounts distributed over a time period – if they choose to spend it, they won’t be able to buy it – their loss. That way they know that the power to reach a financial goal is in discipline.
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