Recently my son’s teachers and I met for his IEP (individualized education plan) and one of the goals we discussed was using money. In elementary school this meant differentiating between bills and coins; here I asked them to help me teach him the concept of using money and tracking expenses. In this age of credit cards and online transactions, I would venture it’s safe to say most people don’t use cash very often. And conducting transactions online or credit card purchases in a store can be pretty abstract – after all you don’t “see” anything happening.
This started me thinking, I can’t be the only parent who wants to teach his child(ren) about money, but isn’t sure where to start – and I do financial planning for a living! I’m sure there are many parents out there, like me, who had little to know guidance growing up – we learned from watching what our parents did. Maybe we learned how to balance a checkbook, but in today’s day and age how useful is that? Statistically speaking – the vast majority of American families are not planning (financially) and have an average of $130,922 of total debt (Erin El Issa, NerdWallet Study). So if children are learning by example, what exactly are we teaching them?
I propose a change, let’s help our children get started with a solid foundation. Paying them for chores (allowance) is a good start, after all; most of us earn a salary. Add a few steps. Teach them about setting goals and saving towards them. Rather than always buying what they ask for, as they get older start requiring them to buy their own toys or phone(s). Here’s an example. Let’s say your 10 year old is getting an allowance of $5/week for doing chores (putting dishes away, sweeping kitchen, whatever). You could tell them they need to set $0.50 aside for future goals (10%). You could even withhold this and put it into their bank account. This is a great way to create the habit and expectation that they need to save 10% of their income, and by the time they hit the workforce they won’t think twice.
If they don’t do their chores you have a few choices. You could either withhold that day’s amount from the allowance, or you could charge them the same amount they would’ve earned because you had to do it yourself. After all, this is what happens in the “real world”. The last thing you would want to do is pay them anyway, because this sends the message of “your entitled”.
Let’s talk about purchases and cell phones. I think most of us would agree a cell phone is a necessity – when I was growing up I always had at least a quarter on me to call home, but payphones are a thing of the past. An opportunity here is to pass along the extra expense of unlimited text and increased data on your plan. Perhaps you’re thinking “this isn’t fair” or “where would they come up with the money”. Well, where do you get the money? Do they “need” those features, or were they added to keep your bill down when you gave the teen the phone? See where I’m going with this?
This is a definite paradigm shift for most households, so let’s explore it in more detail. Schools are responsible for making sure our children get a quality education and prepare them for the work force. We, as parents, are responsible for making sure our children are productive and responsible adults. Is it more work for us to do what I’m suggesting – yes. Does it mean the child(ren) will likely whine and complain about the fairness of it all – perhaps. But at the end of the day think about where they will be if they’re (1) used to saving at least 10% of their earnings and (2) comfortable with living within their means.
If people lived within their means we would see the average household debt decrease. There will still be things we can’t plan for, but people will have an emergency fund to draw from instead of the credit card. The move away from cash is only going to become more pronounced (in my opinion), why not give our children the tools they need now to understand the value of money later. Let’s break the cycle.