Question: Neither my wife nor I were raised in a home that taught us much about how to handle our finances. We are starting a family and we want to teach our children to be responsible with money. Tips?
Answer: First, don’t overreact. Whenever I hear a young parent say they want to avoid a deficiency in the way they were parented, I fear an overreaction. A little bit goes a long way in this area with children.
When they are young (pre-school, early elementary), keep it simple and concrete. They will likely have a very limited appreciation for the concept of money, so teach them a few basics that will carry over as they get older.
Teach them that money is limited. Don’t give them everything they ask for (even if you can afford it). An allowance is fine, but limit it. You want them to realize they have to make choices in how they spend their money. Some will even learn to save it so they can buy more later. There are plenty of adults that never learned this lesson!
Teach them that money is to be handled wisely. Three jars are very effective teaching tools here. Label one “sharing,” another “saving” and another “spending.” You can pick your own ratios, but we used 10%, 20% and 70% respectively as the amount of each dollar that went into each jar. The source of the jar funding might be allowance, gifts from grandparents or chore income (if you pay your children for doing any work around the house, which leads us to…)
Teach them that work has financial value. Some chores are done simply because you are the member of the family. Those things might include making your bed, cleaning up behind yourself and even helping with larger clean up duties on a Saturday morning. But it’s also a great teaching opportunity to have some chores that may or may not be voluntary, but for which they get paid. Some parents resist this idea, but that is the ultimate arrangement in the world for which you are preparing your child. So why not help them understand it now?
As your children get older (middle and high school age), you can deepen their understanding and appreciation of the basics you taught them earlier. Consider these:
Let them work more. Your teen will learn a lot in an afternoon or summer job. It may be babysitting, housekeeping, lawn mowing, life guarding, golf caddying, working at a retail store or working in food service. The summer before I went to college, I worked in a factory stacking sheet metal. I think mostly out of sheer fear that I might have to do that the rest of my life, I made a 4.0 my first quarter at Louisiana Tech.
Let them pay for more. You’ll probably pay for the basics as long as they are under your roof. But as your teen gets older, their tastes may both expand and get more expensive. It’s a great idea to explain to them what you will provide (food, clothing and shelter are the three biggies), and what they will need to provide for themselves through their own work. Examples might include some clothing, entertainment, music, recreational activities, etc.
Let them choose more. Your children need to learn that as they demonstrate greater responsibility and maturity, they earn the right to make more and more choices for themselves. While I am not advocating an abdication of parental duties just because you kid starts working, you need to realize their time under your roof is limited. So if the only way you can guide their choices if through force, you’ve got other issues than financial.
As your child ages, you’ll gradually transition from being in total control of what they do to being able to offer some influence over the choices they make. They will also transition from needing that control (younger children) to wanting to be more and more independent (teenagers).
Money offers a great venue for both parent and child to learn as they both go through the transition together.
Your thoughtful plan for how you will teach your child about money is one of the best investments you’ll ever make.
Byron R. Moore, CFP® is managing director / planning group of Argent Advisors, Inc. Email him at firstname.lastname@example.org. Write to him at 500 East Reynolds Drive, Ruston, LA 71270 or call him at (318) 251-5800. The opinions of any single advisor do not necessarily reflect the opinions of Argent Advisors, Inc.No forecasts can be guaranteed. Argent Advisors, Inc. does not offer tax, insurance or legal advice. The information contained in this column should not be construed as a substitute for personalized investment, tax, insurance or legal advice.