How to Teach Kids About Money
News flash, parents, said Ron Lieber in Slate.com: “You’re doing allowance wrong.” When to give your kids money—and how much—is one of the most confusing decisions in parenting. Most people “start too late, they hand over too little money and responsibility, and they tie the money to completion of household tasks while asking nowhere near enough in the way of household cooperation.” But the biggest problem is that many households “divert the conversation” about money and the family finances altogether, even when kids express an interest. “In an era in which teenagers make six-figure decisions about college,” shielding kids “from all of that money stuff” does them a real disservice.
So what’s the right way to do it? asked Laura Shin in Forbes.com. For starters, consider bucking the traditional model of linking allowances with chores. Instead, use an allowance as “a teaching tool, like art supplies or musical instruments”; don’t use it as leverage or take it away as punishment. Next, teach kids to “mimic a grown-up budget” and split their allowance into thirds, which they can save, spend, or give—to teach patience, thriftiness, and generosity. Finally, trust them to learn from their own mistakes. “If you want your kids to make smart financial choices, they need autonomy.”
While you’re at it, don’t be stingy, said Nicole Dieker in TheBillfold.com. Start doling out allowances “as soon as your children are old enough to ask about money.” One rule of thumb is to give kids one dollar per year of age each week. Alternatively, and more controversially, you can give your kids a lump sum for the year and watch them “fail spectacularly.” Lieber, who has just written The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money, claims this will make kids “feel their mistakes deeply” and argues that it’s better they learn that lesson “now than at age 24, when errors lead to wrecked credit scores and worse.”
Which is why it’s so important to lead by example, said Bob Sullivan in CNBC.com. That doesn’t have to mean “sharing pay stubs with your preteen,” but opening up a little about the family books can make a big difference in your child’s understanding of money. “The college decision-making process, for example, can and should include a realistic assessment of the entire family’s financial situation, which teenagers can’t do unless they are fully aware of it.” Being candid about your own money missteps can also provide a cautionary tale for kids. Who knows, it might help the parents clean up their financial habits, too.
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