Teaching Children About Money

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Related page: Allowance

Our son, who just turned 6, has been receiving an allowance ($1.25/week) for about a year. It is not tied to chores but he must buy his own small toys and candy with it. His ability to save for something he wants has been pretty good (he bought 5 or 6 beanie babies) but sometimes he'll blow all his money on candy and snacks. He has, in my opinion, learned the value of money. We taught him how to read price tags and he can decide for himself what is expensive or inexpensive. He also realizes that he can collect $4 beanie babies faster than he can collect $5 beanie babies. My latest discovery is that he has also figured out simple arithmetic using fractions as a result. He knows that 2 quarters is a half, 2 halves is 1, and 4 quarters is 1, and can do subtractions in his head involving whole numbers and multiples of 1/4. (He had previously learned addition and subtraction of whole numbers using Jelly Bellys.)

Much to my surprise, I seem to have negotiated a good economy between my kids and myself. We have four, ranging in age from ~1 month to 11 years. We tried several different arrangements before arriving at our current agreement. For several years, I tried various ways to use incentives coupled with an allowance (making their beds, cleaning their room, etc., etc.). I seem to have made a mistake in making the allowance entirely incentive based. They constantly rebelled about cleaning their room, and frequently wished they had an allowance (they usually did no work which the allowance was to be based on).

Our current situation is that I grant each of them an allowance of $0.50 each week. We also have an agreement that I raise this figure when they show good cooperation cleaning, helping mom/myself, etc. Over the last several weeks the number has been $1.00 for each of the girls (our boy - at ~1 month is a little young for this yet). To this, I add opportunities to earn money for specific jobs around the house (washing dishes, mopping floors, clipping yard debris, raking leaves, stacking firewood, etc., etc.). I suggest these opportunities only when the kids inquire about earning money - I do not go out of my way to lure or cajole them into working. On the other hand, they know that when they see dad working in the yard, it is a good opportunity to spend time together (each of them seems to crave Dad's undivided attention (even if I am doing yard work at the same time).

I also added an element of savings. Each of the girls have a savings account with one of the credit unions to which I belong. At various times, they give me money to deposit into their account, and I do so. When they become intensely interested in a particular goal requiring money, we agree on a certain amount for them to contribute, and I provide the balance in matching funds. For example, my middle daughter wanted to study Violin. At age 7 1/2, she inquired, and we set a target of $70 for her to earn. By age 8 1/2, she had amassed the money, and we rented a violin at Ifshin's and engaged a teacher. By her working towards this goal, I am more satisfied that she really wants to study violin/music and am much more willing to put out the remaining funds.

The oldest has been working towards buying a mountain bike. She saved $145 of her money, and I will throw in the remainder to give her a budget of $300. Last weekend we rented a bike at Missing Link which was somewhat beyond our budget ($450) if purchased new, but allowed us to learn about braking, derailleurs, etc., and give us a benchmark. We looked briefly at REI later. She knows that she needs to stay within her budget to get the bike. The eldest also benefited from an experience where I agreed to a shopping spree of $100 for completing summer school (the schools in Albany are not quite what they are cracked up to be). She demonstrated ample skills at stretching the $100 to buy seven different garments (two sweaters, three blouses, and two paris of shorts) between Macy's and Nordstrom in San Francisco. Although you may think me very indulgent, I inquired whether she needed the garments she was interested in (as a way of gently suggesting she consider her needs rather than whims) at each juncture. I find it critical to demonstrate complete confidence in their judgment and taste. That is not to say she tried to go outside of what we would normally allow her to wear.

This seems like quite a ramble, however, I believe that teaching kids about money is an important and complex task. It is not only important to teach them how to earn and save, you must teach them the value of money as well.

Greetings! I am the same guy that submitted that long, boring (I hope not) post about my kids, their allowance, goals and spending. I somehow forgot the most appropriate part relative to the parent that requested the advice. I also have a 5 1/2 year old. My 5 1/2 year old receives an allowance as do her sisters. She usually saves it, although it often does not reach her piggy bank (she is easily distracted by the cat, the baby, etc.). This one has a goal of studying piano. We agreed on a $200 contribution from her. You might think this is excessive, however she has amassed $50 in approximately 6 months, and still has ample time to earn the rest in order to begin studying music before the other two started.

All three girls have embarked on several business ventures at many points over the last several years. I usually try not to discourage this, provided they do not try to comandeer critical family resources (computer, linens, etc.). As I recall, they managed to sell a hand-made greeting card to a neighbor for $1 once. That was their most profitable venture. They have also tried painting/selling rocks, lemonade and flowers. I think they are finding out how hard it is to set up and run your own business. But are developing some creativity and ingenuity along the way. Having been a math teacher for 10 years, I also try to sneak in questions about relative quantities, distance remaining to acheive their goal, etc.

My primary philosophy is to help my kids understand that money has many uses. Used wisely, it can do some incredible things. The oldest started asking about stock and investments. I think we will save that for another post.