What’s the secret to raising kids who are smart with their money? How can parents nurture children to become wise money managers? In my experiences around the country, I've encountered two types of parents. One type is constantly worried about their college-age kids, wondering, “Why does money slip through his fingers like water? We are always transferring more money into his account. What’s wrong?”
Then there's the other type, beaming with pride as they describe their college-age child: “We’re so proud! It’s amazing how they manage to stretch their cash!”
What can we learn from these successful parents? Here are some practical tips for giving your children the gift of financial responsibility.
When Should I Start Teaching My Kids Money Management?
What do cookies and cash have in common? Both are nice to have, and both vanish quickly when self-control is lacking!
Children younger than four or five often struggle to grasp the abstract nature of money. However, they have no trouble understanding the very concrete fact that cookies, candies, and other treats taste good.
Parents can give their young children a head start on financial wisdom by providing an “allowance” of treats on a regular basis. One couple started by giving their three-year-old, Toby, a small stack of graham crackers twice a week. The graham crackers came only on Saturday and Wednesday mornings, and there was always the same small number. When they were gone, they were gone. No amount of whining, begging, or crying could make Mom or Dad provide more.
Embrace the Great Depression in Your Home
By five or six years old, children are ready to start receiving a small allowance of “practice money” each week. People often ask, “How much should they get?”
There are no hard and fast rules, except one: It’s better to give them too little than too much! Kids learn to manage money best when they must scrimp and save, just like during the Great Depression. They learn to waste money when their allowances are too large.
When Should I Give Them a Budget?
As children grow older, they need gradually more responsibility for budgeting their cash and saving for what they want and need.
Many parents have found success by sitting down with their older children and helping them create a budget. This budget outlines the money they will likely need to buy clothing, school supplies, meals, gasoline, music lessons, etc. After creating this simple budget, give them just enough money on a weekly basis to purchase these items.
One parent shared, “Years ago, I gave my fourteen-year-old cash to buy her school clothes. As I predicted, she spent most of it on one expensive outfit. Then she was outraged when I refused to give her more. I didn’t give in. She ended up wearing a lot of old clothes that year. Now, she comes home from college bragging about all the nice outfits she finds in consignment and second-hand stores. She’s a much wiser shopper because of this experience!”
By using these strategies and starting them early with your kids, they will learn to be responsible in all parts of their lives, including their money. For more tips on helping your kids grow into responsible adults, check out our audio, Four Steps to Responsibility.
Thanks for reading!
