Teach Your Kids About Money: Allowances, Earning and Attitude

I didn’t get much financial education growing up, and wanted to do better by my kids. But money, spending, saving and earning are different experiences for children than for adults. On top of that, the financial climate I grew up in has changed. This hub is about approaches that have worked for our family with young children through teenagers.

What gives you as an adult the most effective lessons about money? In one word: Reality. The bills that arrive in the mail. The check that bounced because the checkbook wasn’t balanced. In general we respond to reality pretty quickly because it has a way of hitting us where we live.

What about kids? By definition they are shielded from reality. Our job as parents is to create a type of “reality” for them, so they can experience both failure and success in a safe environment. The best way to start that process with finances is an allowance.

We started allowances at age five. The allowance is for items that are nonessential, yet just about all parents purchase for children, such as Happy Meals, bubble gum, movie tickets and packs of collector’s cards. A few guidelines:

1. Giving the child an allowance doesn’t mean the family budget goes up. If you would normally spend $5 a week on the above items, give the child a $5 allowance. In essence, you are transferring those small decisions about fun items from the parent to the child, not giving the child a windfall.
2. Provide a wallet or change purse, and carry it yourself. Young children are prone to misplacing cash: keeping it in your own pocket or purse will save some tears.
3. The allowance goes up with age.
4. Parents differ on this, but we don’t give our kids allowance to do chores. Maintaining your own living space is not a paid job, it’s a part of life. Also, what if the family income stops coming in for awhile? If you stop giving them allowance will the kids think they shouldn’t have to clear the table or clean up their rooms? We have reduced or suspended allowances during times of financial stress, but daily life continues.

1. Give experience in responsibility. Before getting an allowance the child looks to Mom and Dad for everything. When we say no, the child has a suspicion we just won’t rather than we can’t. They have the luxury of being angry at us, blaming us when there isn’t money to go out to the movies after a week of Baskin & Robbins trips. Now, when the cash is gone, they have to look to themselves. It’s a maturing experience.
2. Curb impulsiveness. Give this one some time. When our kids first got allowances, they were the proverbial kids let loose in a candy store. But better to go through this at age 5 than 15.
3. Encourage saving for things you want. Kids tend to live in the moment, but a movie ticket and a small snack cost more than one week’s allowance, so saving will have to happen.

We live in a knowledge based economy, and the world is only moving more in that direction. Kids in this generation need to plan on a college education. Declining family incomes also mean they may have to substantially pay their own way. It’s not fair, but the world is becoming more demanding, not less.

We cap allowances at a certain point, because kids should take advantage of work opportunities. Here are some early jobs kids can have:

House/Pet sitting

When relatives or neighbors are away, kids as young as 9 (with parental supervision) can feed pets and do basic household tasks, like bringing in the mail and watering plants. The homeowner should leave a list of daily tasks.

Babysitting

Tweens can start getting their feet wet in the world of babysitting by entertaining preschoolers while Mom is in the house. A 12 year old girl came to my house three times a week the summer I had my second baby, and played games with my 5 year old. As kids get older, there is a lot of money to be made in the world of babysitting.

Refereeing

This is the best work I know for kids, in both money and the leadership skills they will develop. Our son had to take a six hour class, pass the exam, and purchase his $70 uniform to be a California soccer referee. The age requirement is 13, though few 13 years olds manage to pass the exam. Newly certified refs get $15 a game for their first ten games, and $20 a game after that. Given that the games last an hour, this is very good pay. Our son regularly refereed five games a weekend this past fall, his second season, and saved pretty much all of it. This spring he will start training to certify as a lacrosse referee, which pays even better, possibly due to a shortage of referees. For some reason, Little League doesn't pay referees well.

All of the above would not be worth much without the right attitude about money.

A teen at church asked my advice a few years back: “I don’t want everything to be about money, like it is for my parents. It’s all they talk about.”

“Absolutely not,” I replied. “You want to be free.”

“Yes! Exactly!”

“Your independence is invaluable. To be free, you need to be able to take care of your basic needs. That’s when you are free to do what’s meaningful to you. Do what it takes to get yourself into that position. Then, you’re free to do whatever you want.”

The goal of learning about money is to be free. When you have learned self control and planning regarding money, and add marketable skills, you will have freedom.