Teaching Kids Financial Responsibility
In todays world of “plastic purchases,” many kids are growing up with little understanding of the financial realities of life. As parents, our paychecks are directly deposited into our accounts, we pay bills online, and use credit or debit cards to make purchases.
While these methods are certainly convenient, they may be robbing our children of the valuable lessons they will carry into adulthood. What can we do today, to teach our children the value of money? What tools and experiences will they need to become fiscally responsible adults? Most importantly, how do we get started?
There are many ways to teach your kids about money. One place to start is with an allowance. By giving your children an allowance, you are beginning an important conversation that will hopefully continue through to adulthood. It also gives you and your spouse an opportunity to evaluate your own financial habits and goals, changing any bad habits that you may be struggling with.
When determining an allowance, it is necessary to first decide what you are trying to teach your kids. For younger kids, it is a good idea to teach the basics of saving. A young child may be given 10 dimes each week. This makes it easy for her to understand the concepts of saving. One basic breakdown is 10% to long term savings (like a college fund,) 20% to savings (for a special toy, etc.) and 70% to spend.
Use three different jars, each week putting one dime in the college fund, two dimes into savings, leaving seven dimes to spend. The concept is that this equation for saving will become a lifelong habit, continuing as the allowance increases.
When teaching older kids to budget, give them an amount that can cover their needs, but will still require them to make decisions about their purchases. Decide together what purchases they will be responsible to pay for with their money. This is the time to establish expectations.
You may also teach basic budgeting skills to make sure that they understand that the money has to last the whole week, month, or “pay period.” A few failures may help to reinforce these lessons, and ensure success later on.
In high school, encourage your child to seek employment, and become even more financially independent. Hopefully, by now your child has established good financial habits. Now is the time to open up their own bank account with a debit card, and a separate savings account. Giving children the opportunity to succeed or fail with a debt card while still at home, can help to prepare them for financial success when they leave home to begin college or their career.
[...] Blake presents Teaching Kids Financial Responsibility posted at Becoming Debt [...]
[...] Debt Free questions whether we are doing a good enough job teaching kids financial responsibility, and suggests some ways for doing a better job. Added bonus of individual suggestions for different [...]
Your post is well written and I enjoyed it. Unfortunately more parents don’t do it to prepare their kids. I wrote a similar post on my blog.
[...] Blake presents Teaching Kids Financial Responsibility posted at Becoming Debt Free. This is an interesting take on teaching children how to ration [...]
I think the way my parents taught financial responsibility was much more realistic than what most do. First, my sister and I were given an allowance that was larger than that of most of our friends, but unlike our friends, we were told that this allowance had to cover EVERYTHING — no going back to our parents because we wanted to go to the movies or the mall, or even a Broadway show (or the circus) with our friends. Our allowance was supposed to cover our lunches (we certainly had the option of either buying lunch at school or taking it from home) as well as all entertainment expenses. We simply knew that it would do no good to tell Mommy and Daddy that we had no money for lunch — the answer would be to take lunch from home from leftovers from dinner. Therefore, although we were given more money, it had to go MUCH further.
Of course, money for school trips and other seriously expensive items was not included. We just had to pay for the normal things a kid’s allowance is expected to cover. Incidently, our allowance also included all gifts we had to buy for people and when I was in 6th grade I started my own holiday fund. I put aside $1.00 a week in a card file box, and had over $50 at the end of the year to buy gifts for family and friends. (Back in the early 60’s that was a significant amount of money for a 12 year old).
Then, when we turned 16 my sister and I were given a clothing allowance. While it was understood that our parents would help out (just help, not totally pay for) such high ticket items as a new winter coat or a fancy dress for a family wedding, we had to pay for most of our own clothes. My sister decided she wanted a cashmere sweater, and then had to go the rest of the school year in tattered underwear. There were simply NO exceptions.
Believe me, as an adult (I am now 60) I have come to appreciate the wisdom of how my parents handled the situation. While I have had some touch financial times (like periods of unemployment), I have NEVER been totally without money. I’ve just learned to allot what I have (which includes putting aside an amount for savings).
Although specific dollar amounts may be different these days, I believe the concept is still quite valid. For a kid to have their own discressionary money, but to know that it is limited and there is no one they can go to for a handout is what really teaches financial responsibility.