Every parent struggles with how to teach kids the value of money. Whether the family budget is tight or has room for unplanned spending, we all worry that our youngsters have little idea of what it takes to earn and how to save appropriately. Also, most of us want to instill the desire to support charitable causes we believe in. Here are three tips that are supported by many child-raising experts:
Give each child a regular allowance. Most say that this should be simple and scaled to the child’s age, like $1 per year of age per week, so a ten year-old would get $10 per week. Some suggest the allowance should be linked to completing a set of chores or responsibilities, as we do with my three kids. Every week, give each child the money, or credit an electronic account like the app iAllowance, which has been wonderfully successful for tracking allowance and rewards in my family. Giving the child regular, frequent credit for his or her allowance strengthens the connection between the desired behaviors and the reward, which increases the child’s motivation.
Have the child divide money for immediate use versus longer-term planning. One popular approach to this is to take 10% of the allowance and reserve it for charitable giving. Then, divide the remaining 90% into thirds. One-third is for long term savings, like college or buying a car. The next one-third is reserved for an intermediate-term goal, like that more expensive toy or video game that will take a couple of months of savings to earn. The final third is “fun money” that can be spent anyway the child likes. So a ten year-old would put aside $1 for charity and have $3 each for fun money, short, and longer term savings.
In my family, this savings scheme has worked fairly well for the past few years. Our children understand that, as with the family’s finances, not all money that comes in can be spent frivolously. Adults have obligations that consume most of our earnings. Many experts agree that it’s worthwhile to give our children a look at the family’s actual finances, going so far as to show the paychecks, checkbooks, and credit card statements that reveal how much is taken out for taxes, how much goes toward the mortgage or rent, and how very little is generally left for discretionary spending. Not every family will be comfortable sharing this level of detail, but if you are, you may just be amazed at the value of the lessons learned.
Teach your kids early about charitable giving. Reserving 10% of a child’s “earnings” for philanthropy and giving your child decision-making authority over what charities he or she supports sets a powerful example that is likely to become a lifelong habit. If your child enjoys Scouting, let him or her make a gift to allow less fortunate children to have the same kinds of character-building outdoor experiences. My wife, Tanya, and I like to match our kids’ giving at a higher level, so if my sons give $3 to Scouting, we will make a $30 contribution from our family’s annual giving budget. Our kids, knowing that their donation will be matched in multiple by their parents, think very seriously about where they will allocate their charitable dollars. And it feels good for a family to sit down and talk about how it will give money to have the biggest impact. Our kids are surprisingly smart and insightful about this.