How to Truly Teach Your Kids the Value of Money

Kids are expensive. Their needs alone are sometimes enough to send otherwise financially stable parents in search of a second mortgage. Then there are all the wants. There is the pressure to fit in with the latest styles and technological gadgets. Let’s not even start on the ever-increasing pressure to make every stinking holiday, no matter how minor, a complete and total party of the year.

Do kids realize just how much time and effort is involved in providing all these needs, wants and over-the-top celebrations? Not usually, no. It isn’t because you haven’t tried to help them understand the value of a dollar. They just don’t usually get a whole lot of practical, real-life application to practice with and learn from.

Overthrowing the Generally Recognized as Sound Financial Advice

Most of us have probably all heard that in order for kids to learn about money, they have to have a means of being involved with money. That much is true. Whether it’s a <em><strong>weekly allowance</strong></em> just because or a reward type system for completing chores, everyone has their own ideas about the best way to present kids with cash.

The problem with most of these types of methods is that they don’t really reflect real-world financial situations that they will face as adults. It gives them a rudimentary understanding of the basics of money, but it’s not enough to prepare them for a lifetime of working and financial responsibility.

Some ideas hit closer to the mark, such as encouraging teens to get a part-time job and pay for their own vehicle expenses. This can be an excellent start to real budgeting, but only if a parent isn’t willing to bail the child out when he or she blows the paycheck on frivolous purchases. Furthermore, by the time a child is old enough to put this system into place, there isn’t much time to get the hang of things before it’s time to be thrust into the world of adulthood.

Financial Training That’s so Simple It’s Brilliant

I wish I could take credit for this idea myself. I first heard about this method on a radio talk show where author Mary Hunt was promoting her book Raising Financially Confident Kids. As I listened to what she had to say, I experienced a strange “duh” and “ah-ha” moment all at the same time. What she said was nothing short of genius…but it was so obvious that I felt a little like a dummy for not having thought of it myself.

I’d recommend getting a copy of the book to get the full skinny, but the basics go like this:

• Establish a monthly salary that you feel is appropriate for the age of your child. Your child gets this amount to manage, as an official family member money manager, no matter what. Pay is not docked for failure to complete chores. Rather, a citation is issued with a financial penalty the child must pay out of that salary. This quickly discourages too many infractions and completely demolishes the idea of “free money.”
• Lay down the requirements. If you expect your kids to give a percentage of their money for tithe or charity in their adulthood, establish that from the beginning. 10 percent goes to giving, 10 percent goes to the bank for saving, and the rest is the child’s to use at their discretion. Your child may choose a new book, novelty toy or treat from the store, try to support their independent purchase choice. One suggestion from a reader is to also set aside 15 percent “tax” to go into a family tax jar that everyone will decide how to use later – perhaps for a vacation trip.
• Give your child certain financial responsibilities that you will no longer fund. For example, if your child wants to purchase something from the in school gift shop, he or she will have to use his or her own money to do so. Teens who want to buy name brand shoes are free to do so, as long as they’ve budgeted and saved enough to cover the expense.
• Here’s where it gets tricky: you cannot bail them out! If they blow all of their money on a toy for themselves, then so be it. It doesn’t matter that there’s a birthday party coming up that the child wants to attend and needs a gift to take. If buying gifts for parties is a financial responsibility, then the child doesn’t go. You don’t give loans. You don’t gift extra cash. They’re not going. Period. End of Story. Amen.
• As your child learns how to manage money responsibly, you can give him or her a raise until he or she is managing substantial amounts of money with increasing levels of financial responsibility.

By teaching kids about money in this way, you give them invaluable experience in a loving, secure, low-risk environment. Yes, there are consequences for irresponsible behavior, but they are lessons better taught by people who love your kids rather than by angry credit card collectors or the bank’s foreclosure department. Get the book and read it – it truly is brilliant!