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Teaching Kids About Money (Part 1)

© Arman Rousta

"Money is the root of all evil." "Money doesn't grow on trees." "Show me the money." What messages are you sending your kids about money? Whether you are conscious of it or not, your children will learn from what they see you do, more so than what you say. When it comes to money issues such as financial responsibility and budgeting, where and when do we expect kids to learn these critical life lessons? It is certainly not happening in schools. It is incumbent upon parents to take a proactive approach towards Youth Money Management by putting a plan in place and monitoring in through the years to see how their kids are responding and learning. Year by year, it is important that kids become more independent in their decision-making and personal responsibility.

Parents often put their own financial struggles upon their kids in a way that paints a negative connotation about money. Step one of being able to teach kids about money is to first manage your own affairs well, in terms of keeping debts in check, paying bills on time, and saving effectively for long term goals. Thereafter, an allowance is usually the best place to start educating children; by throwing them in the trenches with their own money, you empower and nurture independence within kids. At what age should you start giving kids an allowance? It depends on their maturity and intelligence levels, although sometime between the ages of 8-10 is usually appropriate. Ask yourself these questions to determine whether or not your child is ready to accept responsibility for an allowance:

1. Does the child comprehend basic arithmetic (addition, subtraction, division, multiplication)?

2. Can the child estimate the cost of at least some household items, groceries, or toys, like a can of soda, paper towels, or video games?

3. Does the child have the basic capacity to delay gratification if reasoned with? (i.e. if you tell the child not to eat candy until after dinner and then leave them in a room alone, would they resist the temptation?).

If your answer is "Yes" to all three of these questions, then your child is ready to receive an allowance. How much they receive is a reflection of what basic expenses you will expect them to cover with these funds, as well as how much they can reasonably save or spend on discretionary items, like toys and candy. Sit down with your finances and figure out how much money you spend per child per month on items such as books, video games, school supplies, haircuts, and movies. Then, put this money in their hands and let them manage their own affairs. Mind you that they will not always make the right decisions, but that is part of the learning process.

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