By Randy Cale, PH.D
How can you teach your children to handle money responsibly? What are the strategies that successful parents use, when teaching their kids about money? Do you pay kids for doing their chores? Should you remove allowances if they are acting poorly?
These are great questions, and ones that parents often inquire about. While your answers may differ from mine, I encourage you to consider the approach outlined below. My recommendations are based upon years of working with families who have developed successful strategies for dealing with money.
1. Never buy responsible behavior.
It is a mistake to pay children for completing basic responsibilities around the house. If you use allowance as a tool to “purchase behavior”, you always end up purchasing their compliance, which isn’t good. Your kids will never learn to “own” their behavior. Instead of this being a signal of responsibility, it is simply a signal that your parenting toolbox is empty, and that you can pay for maid service. It will not generalize to future patterns.
2. Commit to a reasonable allowance around 4th to 5th grade…NOT contingent on “good behavior.”
I strongly encourage you to give the kids an allowance that does not depend on their behavior. Let them know that they get an allowance because you love them and you want them to learn to take care of their own money.
Decide on a reasonable amount of spending money for your children, and include monies for treats that you might typically buy them. For example, if you normally buy the kids some juice when you are getting gas, include that portion in their allowance. As they get older, include their lunch money in their allowance. Include some extra spending money, for the small “stuff” they often want and that you pick up for them.
Let them know that it’s their money to manage each week and watch them learn from their choices. Begin early on, to allow children to experience the consequence of good judgment, as well as poor judgment in their use of their money.
3. Open a checking account for your kids and teach them to manage it.
The years between late elementary to early middle school is a good time to open a checking account for your kids so they can deposit their allowance. Teach them how to get their monies and how to write a check. This is a remarkably practical and powerful way to learn about basic money management. Set aside time weekly to help your kids balance their checkbook and to discuss how they might spend their resources. In today’s world, they will not only learn to balance their checkbook, but also learn to gain access to their records via their computer.
4. Open a savings or investment account for your children and teach compound interest.
When you open the savings account, sit down and show your kids the effect of compound interest. Make sure you repeat this on a regular basis and teach them how the bank will pay them to “store” their money there. Explain to your kids that if they start saving at an early age, they will have abundant resources by the time they reach the middle stages of their lives.
As an incentive to their savings program, let them know that you will match every dollar that they put and keep in their savings account. Show them the power of this as they look ahead to the next 10, 20, 30, and even 40 years. (If you haven’t played with a compound interest calculator, you may want to do this with your children, especially as they move into adolescence.)
5. Never model impulse buying.
When you continually buy impulsively, you are teaching them to do the same. In every arena of life, you simply can’t escape what you model. If you want them to make wise purchases, with forethought and consideration about the importance of the purchase, make sure that you model this.
Remember that your kids are always learning, and you are the primary teacher.
6. Buy the book Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money by Robert T. Kiyosaki.
Mr. Kiyosaki has written several books under the general title of “ Rich Dad, Poor Dad”, but the book written for teaching children about money is an excellent primer on this subject.
If you find yourself struggling with how to teach responsible patterns of behavior without paying for it, I encourage you to carefully review the materials on my website, www.TerrificParenting.com. The tools of effective parenting are much more powerful than money and the results are more enduring. As always, I encourage you to email me with your feedback, at DrCale@TerrificParenting.com.
Dr. Randy Cale, a Clifton Park based parenting expert, author, speaker and licensed psychologist, offers practical guidance for a host of parenting concerns. Dr. Cale’s website, www.TerrificParenting.com offers valuable free parenting information and an e-mail newsletter.