August 18, 2016
It’s that time of year again: back to school. While I know there are legions of amazing teachers waiting to educate your kids, I need you to step up and do some important teaching that most schools drop the ball on: personal finance.
Please don’t shrug that it’s not all that important. Or that you have time to explain things when they are leaving for college. That is way too late. How your kids relate to money is something that needs to be learned through experience. You can’t cram experience into one serious talk two weeks before they move out.
Here’s how to teach important money lessons along the way:
Give Each Child a Back-to-School Budget. Once they are 10 or so, start introducing the notion of cash flow management by telling each child how much money they have for clothes and how much for supplies. Then have them build a shopping list (or online wish list). Chances are they aren’t going to stay on budget for the first go-round. That’s where you step in and with encouragement and a sense of fun—yes, I said fun-work together to figuring out tradeoffs they will need to make to meet their budget.
I can’t stress enough how important your attitude is here. You want them to enjoy this challenge, not feel punished.
Formalize Allowances. This bears repeating: no one is to ever get an allowance for good behavior. That’s a bribe, and so very wrong on so many levels.
Allowance is earned, not given. Emptying the dishwasher. Helping with the laundry. Mowing the lawn. Doing whatever chore you can think of that is appropriate and that actually is of value to you. (That’s part of the lesson here: helping the family!)
Children under the age of 12 or so should get an allowance every week. From 12-16 stretch it out to once every two weeks. By junior year think about making the allowance monthly, with the idea that your child will need to make the money last the entire month. Coach them. Help them. Again, you are gently teaching through experience.
Introduce the 3-Bucket Approach to Financial Gifts. If your child receives money for birthdays or other celebrations, I strongly recommend you create a structure for how that money should be handled. My three bucket strategy:
• Spend it. Let your child use the money any way they please. No judgment, and no steering. It is so important they be given the right to make their own choices.
• Save it. You might want to divide this into two smaller buckets: one for a short-term savings goal and one for a longer-term goal. College is a great long-term goal, but it’s asking a lot to tell an eight year old they need to save for a goal so far off in the future. That’s where a shorter-term goal comes into play: saving for a special toy or piece of electronica that you expect them to contribute to paying for. Or saving to have some spending money for the next family vacation.
• Share it. Work with your child to talk about charities. That can be a local group, a national organization or a global non-profit. Just think of all the great conversations this is going to trigger. If your child wants to make a donation to a local charity, I highly recommend having them drop it off in person.
I will leave it to you to decide how to divide the buckets. Just be sure to convey to your children that each bucket is important. While they will likely enjoy the first bucket the most, it’s the Saving and Sharing buckets that are so vitally important to raising a money-aware child.