Teaching financial responsibility to children is important, and it pays off in the long run. Financial planning and the rewards it reaps becomes second nature to an adult who, as a child, was taught the basics of financial responsibility. And it’s not a difficult lesson to learn or teach. Here’s a step-by-step guide to help your children reap long-term financial rewards.
Give an allowance
A good guideline is to give a dollar for each grade the child is in ($4 for a fourth grader, $5 for a fifth). Whenever children ask for an item, insist they use their allowance and don’t back down. Once they realize they’re responsible for their own purchases, they quickly learn to rate items by importance.
A portion of the allowance for the older child (anywhere from 75 cents to $1.50) should automatically go into a “Family Jar”. When enough money is saved, the family can do a fun activity together, such as a movie or dinner. Children learn that money goes to services as well as to goods.
Share with your children how much you make and what things cost. Sally and her husband John did this in the most impressive way imaginable. One month, they cashed their entire paychecks in one dollar bills. Heaping the pile of money on the table brought gleeful sounds from the children. Amid the “oohs and ahhs,” the children peppered the conversation with phrases like “we’re rich!” and “buy me a Porsche.”
Then Sally and John had the children count out the basic necessities. First the mortgage, car payment, insurance, food, phone, gas, electric bills, credit cards, school lunches and allowances. Next, money was put aside for medical bills, daily household expenditures and emergencies. The money ran out before the list of necessities did!
Give allowances in a lump sum
One summer, Karen gave each of her children an old checkbook along with a check register and told them she was the bank. She had them write in the register the amount equal to the entire three months summer allowance. She told them they were to judge how the money would be spent. They could use it all at once or a little at a time.
Whenever they wanted money they wrote out a check and turned it over to Karen. She also reminded them that they were going on vacation soon and suggested they might want to save some money for souvenirs, etc.
By mid summer, one child was broke, the second was spending at a reasonable rate and the third was lending his older brother money. That brought up the discussion of lending money with interest just as banks do. (The younger child charged interest not in dollars, but in chores).
Have them open a real bank account
Many banks will open an account with as little as $10. Depositing unexpected money, such as birthday money, for example, is a painless way to save.
Invest in a favorite company
A fun investment such as Disney or McDonalds is another way to teach the value of saving. Receiving a small dividend check periodically is always fun.
Hire your children to do big jobs
One parent posted a chart on her refrigerator with a list of chores and the price she’d pay. The harder the job (washing the dog, washing the car) the higher the pay ($2-$3). Simpler jobs paid less, such as removing and dusting all the books in a bookcase (50 to 75 cents).
When a child wants a big ticket item (basketball shoes that cost more than a microwave, but will last one-tenth as long), offer to pay the amount that you would normally spend. Have your child make up the difference. And let him do the leg work. Take him to the mall to do comparison shopping.
Give older children their annual clothing allowance at the start of the school year, and let them make their choices. Judy spoke about the jeans her son wanted one year. “They were so expensive, I could’ve bought two lesser know brand name jeans and some shirts for the same price.” But her son begged until Judy gave in. He bought the jeans, but he only got two new shirts. She said he’d have to wear his old clothes no matter how quickly he outgrew them.
She also refused to do extra laundry. If his clothes needed to be washed before his regular wash, he’d have to do it himself. He agreed and all was wonderful the first five weeks of school. Her son felt “cool” in his brand name jeans. Then the novelty wore off. Within two months he had learned his lesson. Not only did he have the extra job of washing those “cool” clothes, the constant wearing made them look old. He soon got tired of wearing the same thing constantly. Eventually, he realized his friends didn’t care about his clothes.
The following school year he bought five shirts and three pair of jeans for about the same amount of money.
Not all of these suggestions will work for everyone, but if you choose the ones that work for you, you’ll be starting your child on a life-long road to financial responsibility. And as a bonus you’ll be saving money for yourself.